Small business management Ch 5,6,7 and 8.txt
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What are the 5 types of business ownership?
Sole proprietorship, General Partnership, Limited Partnership, C Corporation, S Corporation, and Limited Liability Company.
Explain sole proprietor ownership
A business owned and managed by one individual.
What are the advantages of a sole proprietor ownership?
You keep all the profit, make all of the decisions, and the easiest and cheapest to start and end.
Disadvantages of a sole proprietorship?
Unlimited personal liability, limited skills, feeling of isolation, limited access to capital, and lack of continuity of the business.
Define unlimited personal liability.
A situation in which the sole proprietor is personally liable for all of the business's debts.
An association of two or more people who co-own a business for the purpose of making a profit.
What is a partnership agreement?
A document that states in writing the terms under which the partners agree to operate the partnership and protects each partner's interest in the business.
List the four most common types of partnerships.
General partnership, limited partnership, limited liability partnership, master limited partnership.
Define a limited partnership.
Composed of one general partner and at least one limited partner that is treated legally as an investor.
Describe a limited liability partnership.
A special type of partnership in which all partners, who in many states must be professionals, are limited partners. Doctors, lawyers, ect. Can't be held responsible for partners errors.
A partnership whose shares are traded on stock exchanges, just like corporation's is are what types of partnerships?
Master limited partnerships.
Foreign, domestic, alien, closely held, and publicly held are what types of business?
A separate legal entity apart from its owners that receives the right to exist from the state in which it is incorported.
A corporation doing business in the state in which it is incorporated is what type of corporation?
What is an alien corporation?
A corporation formed in another country but doing business in the United States.
What is a closely held corporation?
A corporation whose shares are controlled by a relatively small number of people, often family members, relatives, friends, or employees.
A corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges is what type of corporation?
A publicly held corporation.
The rights of a corporation's original investors to purchase enough shares of future stock issues to maintain their original percentage of ownership in the company are called what type of rights?
Shares of a company actually owned by the corporation is what type of stock?
What are rights of first refusal?
A provision requiring shareholders who want to sell their stock to offer it first to the corporation.
What are the rules and regulations the officers and directors establish for a corporation's internal management and operation called?
What are some advantages of a corporate ownership?
- Limited liability of stockholders.
- Ability to attract capital
- Ability to continue indefinitely
- Transferable ownership
What are some disadvantages of corporate ownership?
- Cost and time involved in the incorporation process
- Triple taxation
- Potential for diminished managerial incentives
- Legal requirements and regulatory red tape
- Potential loss of control by the founders
Explain triple taxation.
A disadvantage of the corporate form of ownership in which a corporation's profits are taxed three times: at the corporate rate at the individual rate and employee level.
These criteria are for what type of business corporate ownership?
1. Must be a domestic (U.S.) corporation.
2. It cannot have a nonresident alien as a shareholder.
3. It can issue only one class of common stock, which means that all shares must carry the same rights(e.g. the right to dividends or liquidation rights). The exception is voting rights, which may differ. In other words, a ____ corporation can issue voting and nonvoting common stock.
4. It must limit its shareholders to individuals, estates, and certain trusts, although tax-exempt creations such as employee stock ownership plans (ESOP's) and pension plans can be shareholders.
5. It cannot have more than 100 shareholders, which is an important benefit for family businesses making the transition from one generation of owners to another. Members of one family are treated as a single shareholder.
6. Less than 25 percent of the corporation's gross revenues during three successive tax years must be from passive sources.
The S Corporation.
Define an S corporation.
A corporation that retains the legal characteristics of a regular (C) corporation but has the advantage of being taxed as a partnership if it meets certain criteria.
What is a limited liability company?
Like an S corporation, is a cross between a partnership and a corporation; it is not subject to many of the restrictions imposed on S corporations.
The document that creates an LLC by establishing its name, its method of management, its duration, and other details is called what?
Articles of organization.
Describe an operating agreement.
The document that establishes for an LLC the provisions governing the way it will conduct business.
What are the two documents necessary to form a LLC?
- 1. Articles of Organization
- 2. Operating Agreement
The system of distribution in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system is what form of doing business?
What are the 3 types of franchising?
- 1. Trade Name Franchising
- 2. Product Distribution Franchising
- 3. Pure Franchising
Explain trade name franchising.
A system of franchising in which a franchisee purchases the right to use the franchisor's trade name without distributing particular products under the franchisor's name.
A system of franchising in which a franchisor licenses a franchisee to sell its products under the franchisor's brand name and trademark through a selective, limited distribution network.
Product Distribution Franchising
Explain Pure Franchising
A system of franchising in which a franchisor sells a franchisee a complete business format and system.
What are the benefits of buying a franchise?
- Gaining access to a business system that has a proven record of success.
- A lot of franchisors offer management training programs to franchisees.
- The franchisee has the advantage of identifying his business with a widely recognized trademark.
- The franchisor's reputation is at stake, so they standardize the quality of the goods or service sold.
- You have the benefit of national advertising programs.
- Some franchisors offer financial assistance to start-up and grow your business
- The franchisee can depend on methods and techniques of an established business. (Proven products, business formats)
- Centralized Buying Power
- Site Selection and territorial protection
What are some drawbacks of owning a franchise?
- Franchise fees and ongoing royalties
- Strict adherence to stadardized operations
- Restrictions on purchasing
- Limited roduct line
- Contract terms and renewal
- Unsatisfactory training programs
- Market Saturation
- Less freedom
What is a Franchise Disclosure Document?
A document that every franchisor is required by law to give prospective franchisees before any offer or sale of a franchise; it outlines 23 important pieces of information.
What is Multiple Unit Franchising?
A method of franchising in which a franchisee opens more than one unit in a broad territory within a specific time period.
A method of franchising that gives a franchisee the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchises is what type of franchise?
Putting a franchise's products or services directly n the paths of potential customers, wherever they may be is what type of marketing?
Explain Conversion Franchising.
A franchising trend in which owners of independent businesses become franchisees to gain the advantage of name recognition.
List some advantages of buying an existing business.
- A successful existing business may continue to be successful.
- And existing business may already have the best location
- Employees and suppliers are established
- Equipment is installed and productive capacity is known.
- Inventory is in place and trade credit is established.
- The new business owner hits the ground running
- the new owner can use the experience of the previous owner
- Financing is easier to obtain
- It's a bargain
List some disadvantages of buying an existing business.
- It's a "Loser"
- The previous owner may have created ill will
- Employees inherited with the business may not be suitable
- The business location may have become unsatisfactory
- Equipment and facilities may be obsolete or inefficient
- Change and innovation are difficult to implement (people-wise customers, employees, etc.)
- Inventory may be outdated or obsolete
- Accounts receivable may be worth less than face value.
- The business may be overpriced.
What 5 steps are necessary in acquiring a business?
- 1. Analyze you skills, abilities, and interests.
- 2. Prepare a list of potential candidates
- 3. Investigate and evaluate candidate businesses and evaluate the best one
- 4. Explore financing options
- 5. Ensure a smooth transition by effectively communicating with the employees and the former owner if necessary.
Name the 4 categories of business buyers.
- 1. Main street buyers: want a business that is manageable and easy to run alone or with a small group of employees.
- 2. Corporate refugees: want a service business with commercial clients and existing contract revenue.
- 3. Serial Entrepreneurs: want profitable companies with sound management in place.
- 4. Financial buyers: want profitable companies that offer"hot" products or services and are ready to grown rapidly
What is a hidden market?
Low-profile companies that might be for sale but are not advertised as such.
Explain Due Diligence.
The process of investigating the details of a company that is for sale to determine the strengths, weakenesses, opportunities, and threats facing it.
5 things to consider when doing your due diligence.
- 1. Why does the owner want to sell?
- 2. What is the physical condition of the business?
- 3. What is the potential for the company's products or services?
- 4. What legal aspects should be considered?
- 5. Is the business financially sound?
What 5 things do you investigate when you want to know the physical condition of a business?
- 1. Accounts receivable
- 2. Lease arrangements
- 3. Business Records
- 4. Intangible Assets
- 5. Location and Appearance
When investigating products or services, what is to be considered?
- How current is the company's product line?
- What is the potential for the company's products or services?
- What are the customers' characteristics and composition?
- What are the competitor's characteristics and composition?
A creditor's claim against an asset is called ________?
What does a Bulk Transfer do for a buyer of a preexisting business?
A bulk transfer protects the buyer of a business's assets from the claims unpaid creditors might have against those assets.
A contract provision that prohibits a seller from assigning a loan arrangement to the buyer and instead requires the buyer to finance the remaining loan balance at prevailing interest rates is what type of clause?
What is a covenant not compete or restrictive covenant?
An agreement between a buyer and a seller in which the seller agrees not to compete with the buyer withing a specific time and geographic area.
What legal aspects should you consider when purchasing a business?
- 1. Bulk transfers
- 2. Contract assignments
- 3. Covenants not to compete
- 4. Ongoing legal liabilities
What is a product liability lawsuit?
Lawsuits that claim a company is liable for damages and injuries caused by the products it makes or sells.
Define "goodwill" in business.
The difference in the value of an established business and one that has not yet built a solid reputation for itself.
List the 7 steps in the acquisition process.
- 1. Identify and approach candidate
- 2. Sign nondisclosure statement
- 3.. Sign letter of intent
- 4. Buyer's due diligence investigation
- 5. Draft the purchase agreement
- 6. Close the final deal
- 7. Begin the transition
What are methods of determining the value of a business?
Balance sheet techniques: Total Assets-Total Liabilities= Net worth
A method of valuing a business based on the value of the company's net worth is what method of determining the value of a business?
Balance Sheet Technique
A method of valuing a business based on the market value of the company's net worth is what method of determining the value of a business?
Adjusted balance sheet technique.
A What is the capitalized earnings approach of evaluating a business's net worth?
A method of valuing a business that divides estimated earnings by the rate of return the buyer could earn on a similar risk investment
What is the discounted future earnings approach of evaluating a business?
A method of valuing a business that forecasts a company's earnings several years into the futures and then discounts them back to their present value.
A method of valuing a business that uses the price/earnings (P/E) ration of similar, publicly held companies to determine value.
An exit strategy in which an entrepreneur can increase his or her payout by staying on and making sure that the company hits specific performance targets.
The process of creating and delivering desired goods and services to customers; involves all of the activities associated with winning and retaining loyal customers.
Unconventional, low-cost, creative techniques designed to give small companies an edge over their larger, richer, more powerful rivals.
Guerrilla Marketing Strateties
What are the 7 sentences of the Guerrilla Marketing Strategy?
- 1. What is the purpose of your marketing?
- 2. What primary benefit can you offer customers?
- 3. Who is your target market?
- 4. Which marketing tools will you use to reach you target audience?
- 5. What is your company's niche in the marketplace
- 6. what is your company's identity in the marketplace?
- 7.How much money will you spend on your marketing? (What is your marketing budget?)
The specific group of customers at whom a company aims its goods or services is the ____.
The target market
What are demographics?
The study of important population characteristics such as age, income, education, race, and others.
What is Market Research?
The vehicle for gathering the information that serves as the foundation for the marketing plan; it involves systematically collecting, analyzing, and interpreting data pertaining to a company's market, customers, and competitors.
What are the 4 steps to conducting Market Research?
- 1. Define the objective.
- 2. Collect the data
- 3.Analyze and interpret the data.
- 4. Draw conclusions and act.
A system based on gathering data on individual customers and developing a marketing program designed to appeal specifically to their needs, tastes, and preferences is what type of marketing?
Individualized marketing (one-to-one)
What is data mining?
A process in which computer software that uses statistical analysis, database technology, and artificial intelligence finds hidden patterns, trends, and connections in data so that business owners can make better marketing decisions and predictions about customers' behavior.
What are the 12 principles to help business owners create powerful, effective guerrilla marketing strategies?
- 1. Find a niche and fill it
- 2. Use the power of publicity
- 3. Don't just sell: entertain (entertailing)
- 4. Strive to be unique
- 5. Connect with customers on an emotional level
- 6. Create and identity for your business through branding.
- 7. Embrace social networking
- 8. Start a Blog
- 9. Create online videos
- 10. Focus on the customer.
- 11. Devotion to quality
- 12. Attention to convenience
A marketing concept designed to draw customers into a store by creating a kaleidoscope of sights, sounds, smells, and activities, all designed to entertain__ and, of course, sell.
What is a Unique Selling Proposition? (USP)
A key customer benefit of a product or service that sets it apart form the competition; it answers the critical question every customer asks. "What's in it for me?"
What is it called when you communicate a company's unique selling proposition to its target customers in a consistent and integrated manner.
What is customer experience management (CEM)?
The process systematically creating the optimum experience for the customers every time they interact with the company.
Four questions that businesses constantly ask their customers.
- 1. What are we doing right?
- 2. How can we do that even better?
- 3. What have we done wrong?
- 4. What can we do in the future?
Define TQM total quality management.
The philosophy of producing a high quality product or service and achieving quality in every aspect of the business, and its relationship with the customer; the focus is on continuous improvement in the quality delivered to customers.
A marketing strategy that relies on three principles :1. Speeding products to market 2. Shortening customer response time in manufacturing and delivery, and 3. reducing the administrative time required to fill an order is what type of marketing strategy?
Time Compression Management TCM
What is a product life cycle?
Describes the stages of development, growth, and decline in a product's life.
The stage in which a product or service must break into the market and overcome customer inertia is called what stage?
The Introductory Stage.
The stage in which customers begin to purchase a product in large enough numbers for sales to rise and profits to materialize is what stage?
Growth and acceptance stage
What is the maturity and competition stage?
The stage in which sales rise, but profits peak and then fall as competitors enter the market.
What happens in the market saturation stage?
Sales peak, indicating the time to introduce the next generation product.
The stage in which sales continue to fall and profit margins decline drastically.
Product decline stage.
What are the 4 P's or the marketing mix?
- Place (method of distribution)
- Promotion (marketing)
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