Entrepreneurs people who risk their time, money, and other resources to start and manage a business
Characteristics of an entrepreneur vision, self-reliance, energy and confidence, tolerance of uncertainty and failure
Internal locus of control one is personally responsible for what happens in the...
FM 116 Exam 1 Study Questions and
Correct Answers
Entrepreneurs ✅people who risk their time, money, and other resources to start and
manage a business
Characteristics of an entrepreneur ✅vision, self-reliance, energy and confidence,
tolerance of uncertainty and failure
Internal locus of control ✅one is personally responsible for what happens in their life,
results in self-reliance
External locus of control ✅feeling buffeted by forces like luck and the actions of others
Angel investors ✅individuals who invest in start-up companies with high growth
potential in exchange for a share of ownership
Venture capital firms ✅companies that invest in start-up businesses with high growth
potential in exchange for a share of ownership
Small Business Administration (SBA) ✅agency of the federal government designed to
maintain and strengthen the nation's economy by aiding, counseling, assisting, and
protecting the interests of small businesses
Market niche ✅a small segment of a market with fewer competitors than the market as
a whole, tend to be attractive to small firms
Small Business Development Centers (sbdcs) ✅local offices—affiliated with the Small
Business Administration—that provide comprehensive management assistance to
current and prospective small business owners
Business plan ✅formal document that describes a business concept, outlines core
business objectives, details strategies and timelines for achieving objectives (needed
especially when needing loans)
Reasons to start a small business ✅financial success, independence, flexibility,
challenge, survival
Funding for small businesses ✅- personal resources (family, friends, etc)
- loans
- crowd funding (funding from a large # of investors from the internet)
- angel investors (individuals who invest in start-ups)
, - venture capital firms (companies who invest in start-ups... Ex: Shark Tank)
Small business: OPPORTUNITIES ✅market niches, personal customer service, lower
overhead costs, technology
Small business: THREATS ✅high risk of failure, lack of knowledge and experience,
too little money, bigger regulatory burden, higher health insurance costs
Starting a business from scratch: PROS ✅- it's all you: your concept, your decisions,
your structure, etc.
- you don't have to deal with the prior owner's bad decisions
Starting a business from scratch: CONS ✅- it's all you, lots of pressure
- it takes time, money and sheer sweat equity to build a customer base
- without a track record, it's harder to get credit from both lenders and suppliers
- from securing permits to hiring employees, the logistics of starting a business can be
challenging
Buying an established business: PROS ✅- the concept, organizational structure, and
operating practices are already in place
- relationships with customers, suppliers, and other stakeholders are established
- getting financing and credit is less challenging
Buying an established business: CONS ✅- working with someone else's idea can be
less fun for some entrepreneurs
- you may inherit old mistakes that range from poor employee relations to pending
lawsuits
Buying a franchise: PROS ✅-most cases you're buying your own piece of a well-
known brand and proven way of doing business
-management expertise and consulting come with franchise package
- franchisers occasionally offer advice and also the financing that can make the
purchase possible
- these advantages add up to a very low 5% first-year failure rate
Buying a franchise: CONS ✅- less opportunity for creativity since most agreements tie
you to franchise agreements
- if something goes wrong with the national brand (ex: E coli at a burger joint), your
business will suffer too
- initial purchase price can be steep, and that doesn't include the ongoing percent-of-
sales royalty fee
Impact of small businesses ✅vital to U.S. economy, create new jobs (account for 40%
of new jobs), fuel innovation, vitalize inner cities
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