Kuratko 8e Chapter 06

CHAPTER 6: PATHWAYS TO ENTREPRENEURIAL VENTURES
TRUE/FALSE
1. The way to approach a new business venture is to think up a good or service that is unique.
ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

KEY: pg 150
2. Uniqueness in a product or service can be demonstrated through a new-new approach or a

new-old approach.

KEY: pg 171
3. The action plan covers 3 primary areas: the owner, the finances, and other vital factors.

KEY: pg 174
4. Sales records are of very little value to a buyer in evaluating a companys worth.
ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

KEY: pg 159
5. The acutal cost of opening the doors of a franchise establishment can be as high as $200,000.

KEY: pg 165
6. Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying
an existing one, is that the franchisor will usually provide both training and guidance to the franchisee.

KEY: pg 163
7. Generally, the larger and more successful the franchisor, the greater the franchise fee that is charged.

KEY: pg 165
8. The prospective investor should get as much information as possible on the franchisor.

KEY: pg 164
9. Franchisees have the option of using the logo and symbols of the franchisor.
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold,
copied, or distributed without the prior consent of the publisher.
KEY: pg 163
10. The term upside gain and downside loss refers to the profits the business can make and the losses it
can suffer.

KEY: pg 155
11. The term risk vs. loss refers to the amount of return for funds invested.

KEY: pg 155
12. Business Brokers help entrepreneurs locate the funds necessary to start a business.

KEY: pg 156
13. The elimination of time and effort associated with starting a company is an advantage of acquiring an
ongoing venture.

KEY: pg 157
14. In purchasing an existing business the first question should be: Why are you selling?

KEY: pg 158
15. When purchasing an existing business, the prospective owner should conduct an assessment of the
current group of employees.

KEY: pg 160
16. The most important area to examine prior to purchasing a business is company profitability.

KEY: pg 161
17. It is always important that you weigh the advantages vs. disadvantages in purchasing a franchise.

KEY: pg 164
18. It is not uncommon for a buyer to be faced with a franchise fee of 250,000 to 1,000,000.

KEY: pg 165
19. Much franchise litigation has arisen over termination of owners.
KEY: pg 167
20. The Federal Trade Commission does not provide information on franchise success.

KEY: pg 170
MULTIPLE CHOICE
1. When one designs a unique good or service, the individual is said to have used a(n) ____approach to
starting the business.
a. new-new c. old-new
b. old-old d. new-old
ANS: A PTS: 1 NAT: AACSB Reflective Thinking | Strategy
KEY: pg 150
2. When one discusses upside gain and downside loss, one is talking about
a. inventory turnover. c. asset pricing.
b. risk versus reward. d. liquidation pricing
ANS: B PTS: 1 NAT: AACSB Reflective Thinking | Strategy
KEY: pg 155
3. Piggybacking ones way into business involves using a ____approach.

a. new-new c. new-old
b. old-new d. old-old
ANS: C PTS: 1 NAT: AACSB Reflective Thinking | Strategy
KEY: pg 150
4. Which of the following is not a key question a prospective buyer needs to ask in buying a business?
a. Why is the owner selling? c. How many of the personnel will remain
with the firm?
b. What is the owners personal net worth? d. What type of competition exists?
KEY: pg 158
5. Which of the following is an intangible asset?

a. goodwill c. plant
b. inventory d. machinery
KEY: pg 159
6. An advantage to buying an on-going business is

a. reduced concern over future operations. c. it may be purchased at a bargain price.
b. time and effort are reduced d. all of the above.
ANS: D PTS: 1 NAT: AACSB Reflective Thinking | Strategy
KEY: pg 157
7. A key question to ask when buying an on-going small business is which of the following?
a. How old is the business? c. Can you become a millionare by buying
this business?
b. Where should you retire someday? d. How many personnel are going to remain?
KEY: pg 160
8. When buying a business, competition must be investigated because

a. price competition may affect profits. c. competition may be spending more money
on advertising than you.
b. new competition may reduce market d. all of the above
share.
KEY: pg 160
9. Which of the following is a question which can be sidestepped when buying a business?
a. Where should the business be located? c. What pricing strategy should the firm use?
b. What types of customers does this store d. All can be sidestepped.
attract?
KEY: pg 157
10. Business related reasons for selling may include all but which of the following?
a. The owner may be in trouble with c. Changes in zoning which affect the
suppliers. business.
b. Changes in leasehold conditions. d. All of the above.
KEY: pg 158
11. An agreement not to compete is also known as

a. a trade restriction clause. c. a waiver of competition clause.
b. a legal restraint of trade. d. a deferential sale of business clause.
KEY: pg 159
12. Business related reasons for selling do not include which of the following?
a. The owner may be in trouble with c. Changes in the product supply chain.
suppliers.
b. Changes in leasehold conditions. d. Changes in zoning which affect the
business.
KEY: pg 158
13. The inventory should be examined for which of the following?

a. Salability c. Is it up to date?
b. Does a physical count correspond with the d. All of the above.
book count?
KEY: pg 159
14. A ____ is a system of distribution that enables a supplier to arrange for a dealer to handle a specific
product or service under certain mutually agreed upon condtions.
a. franchisee c. franchisor
b. franchise d. franchiser
KEY: pg 163
15. The individual who buys the franchise is the

a. franchisee. c. franchisette.
b. franchisor. d. franchatter.
KEY: pg 163
16. A franchise system can be used for handling

a. goods. c. both of the above.
b. services. d. none of the above.
KEY: pg 163
17. The person who gets the franchise is usually required to do all of the following except:
a. invest money in the operation. c. pay a fee.
b. maintain a specified quality of d. design a logo for the unit.
performance.
KEY: pg 163
18. The franchisees responsibilities include:

a. a financial investment. c. engaging in a continuous business
relationship.
b. payment of a fee. d. all of the above.
KEY: pg 163
19. The advantages of franchising include:

a. training and guidance. c. proven track record.
b. brand-name appeal. d. all of the above.
KEY: pg 163
20. The person who sells the franchise is usually required to do all of the following except:
a. pay a fee. c. help out with financial assistance.
b. provide professional management training d. provide continuing aid and a guidance to
to the units staff. the person buying the franchise.
KEY: pg 163
21. An advantage associated with franchising is

a. training and guidance provided by the c. track record of the other franchisees as
franchisor. proof of success
b. brand-name appeal of the franchise d. all of the above
KEY: pg 163
22. The right questions the prospective small business owner should ask about a franchise deal with
a. the franchisor. c. the market.
b. the franchise. d. all of the above.
KEY: pg 158
23. Evaluating franchise opportunities include finding out more about which of the following?
a. the franchisor c. the franchisee
b. the franchise d. all of the above
KEY: pg 167
24. The UFOC contains how many sections:

a. 41 c. 9
b. 23 d. 100
KEY: pg 168
25. Which of the following costs add to the cost of franchising?

a. insurance c. legal and professional fees
b. payroll d. all of the above
KEY: pg 165
26. Coming up with a unique good or service is a _____approach, while adapting something that is
currently on the market or extending the offering to an area where it is not presently available is a(n)
_____approach.
a. new-new, old-old c. new-new, new-old
b. new-old, old-old d. new-old, old-new
KEY: pg 150
27. Starting a business by adapting something already on the market is called what approach?
a. franchising c. new-new
b. buying a new business d. new-old
KEY: pg 150
28. When buying a small business you need to know all of the following items except:
a. the owners reason for selling. c. the financial picture of the business.
b. the competition in the area. d. the owners family stability and
relationships.
KEY: pg 158
29. Reviewing personnel of the business about to be purchased is important in order to determine
a. whether employees with key skills will c. the cost of replacing an employee.
stay or leave.
b. if employees are leaving, will enough d. a, b, and c above
remain to operate the business.
KEY: pg 160
30. When this asset is purchased, the buyer should be sure to deduct those so old that they are deemed
uncollectible.
a. prepaid expenses c. accounts receivable
b. inventory d. equipment
KEY: pg 158
31. Business related reasons for selling may include all but which of the following?
a. The owner may be in trouble with c. Changes in zoning which affect the
suppliers. business.
b. Changes in leasehold conditions. d. All of the above.
KEY: pg 158
32. The extra value a business can command in a sale is known as

a. goodwill. c. market value.
b. saleable value. d. asset value.
KEY: pg 159
33. Competitor factors in a buying decision do not include

a. quality of the competition. c. age of the competitions owners.
b. location of the competition. d. number of competitors.
KEY: pg 160
34. The individual who arranges for a dealer to handle a specific product or service under certain mututally
agreed upon conditions is known as the _____.
a. franchisee c. franchiser
b. franchisor d. franchisette
KEY: pg 163
35. The franchisors responsibilities include providing

a. company name. c. management and training.
b. symbols and logos. d. a, b, and c only.
KEY: pg 163
36. Which of the following is not a disadvantage of a major franchise?

a. franchise fees c. track record of the franchisor
b. control exercised by the franchisor d. awareness of some of the unfilled
promises from franchisors
KEY: pg 164
37. Which of the following costs do not add to the cost of franchising?
a. insurance c. legal and professional fees
b. prepaid utility bills d. opening product inventory
KEY: pg 165
38. After all of your investigation into a franchise, the final decision should be up to
a. your lawyer. c. you.
b. your financial backer. d. your accountant.
KEY: pg 171
39. Which is not a start-up expense?

a. Rent c. Supplies
b. Advertising d. Depreciation
KEY: pg 164
40. Which is not a key question to ask when buying a business?

a. Why is the business being sold? c. What is the condition of the inventory?
b. Is the building heated with gas or electric? d. How many of the employees will remain?
KEY: pg 158
41. The _____approach indicates the importance of peoples awareness of their daily lives for developing
new business ideas.
a. new-new c. old-new
b. old-old d. new-old
KEY: pg 150
42. Which of the following are trends creating business opportunities?
a. green products c. health care
b. alternative energy d. all of the above
KEY: pg 151
43. What is the largest source of new business ideas among men?
a. Chance c. Hobby
b. Prior job d. Education courses
KEY: pg 152
44. What is the largest source of new business ideas among women?
a. Prior job c. Education courses
b. Hobby d. Chance
KEY: pg 152
45. What is an often overlooked asset when acquiring a new business?

a. Firms records c. Equipment
b. Buildings d. None of the above
KEY: pg 159
46. An analysis of the competition should look for ______.

a. opportunitites. c. unscrupulous practices.
b. weaknesses. d. None of the above
KEY: pg 160
47. Who must negotiate the final deal?

a. A lawyer c. The potential buyer
b. A CPA d. All of the above
KEY: pg 161
48. Have a seller retain a _____interest in the business.

a. minority c. 20%
b. majority d. 40%
KEY: pg 162
49. Which franchise is not included in the top ten franchises?

a. 7-eleven Inc. c. Pizza Hut
b. Subway d. Jimmy Johns
KEY: pg 164
50. Which is not a cost of franchising?
a. Insurance c. Payroll
b. Debt Service d. All are costs
KEY: pg 165

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CHAPTER 6: PATHWAYS TO ENTREPRENEURIAL VENTURES

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

2. Uniqueness in a product or service can be demonstrated through a new-new approach or a

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: T PTS: 1 NAT: AACSB Reflective Thinking | Strategy

ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

19. Much franchise litigation has arisen over termination of owners.

ANS: F PTS: 1 NAT: AACSB Reflective Thinking | Strategy

3. Piggybacking ones way into business involves using a ____approach.

5. Which of the following is an intangible asset?

6. An advantage to buying an on-going business is

8. When buying a business, competition must be investigated because

11. An agreement not to compete is also known as

13. The inventory should be examined for which of the following?

15. The individual who buys the franchise is the

16. A franchise system can be used for handling

18. The franchisees responsibilities include:

19. The advantages of franchising include:

21. An advantage associated with franchising is

24. The UFOC contains how many sections:

25. Which of the following costs add to the cost of franchising?

32. The extra value a business can command in a sale is known as

33. Competitor factors in a buying decision do not include

35. The franchisors responsibilities include providing

36. Which of the following is not a disadvantage of a major franchise?

39. Which is not a start-up expense?

40. Which is not a key question to ask when buying a business?

42. Which of the following are trends creating business opportunities?

45. What is an often overlooked asset when acquiring a new business?

46. An analysis of the competition should look for ______.

47. Who must negotiate the final deal?

48. Have a seller retain a _____interest in the business.

49. Which franchise is not included in the top ten franchises?

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