Small Business Management

1) One advantage of buying an existing business is:

a. equipment is installed and production capacity is known
b. the opportunity to participate in a national advertising campaign
c. easy implementation of innovations and changes from past policies
d. you always get the best location

2) The inventory in an existing business:

a. is usually stated honestly and does not need independent auditing
b. usually appreciate over time, making the business a bargain
c. is always current and salable
d. needs to be checked for age and salability

3) Accounts receivable in an existing business:

a. are rarely worth their face value
b. appreciate over time due to interest and penalties
c. are not a significant consideration when buying an existing business
d. unlike inventory, are often worth their face value

4) Once an entrepreneur has evaluated him/herself, the next step in the acquisition process would be to:

a. explore financing options
b. work on a smooth transition
c. evaluate the physical condition of the business
d. develop a list of criteria for an ideal business

5) In a business sale, the seller is looking to:

a. minimize the amount of cash paid up front
b. maximize the cash he/she gets from the sale
c. get the business at the lowest price possible
d. negotiate favorable payment terms, preferably over time

6) The recommended steps when buying a business are:

a. analyze your skills and abilities
b. explore a variety of financing options
c. investigate the potential acquisitions
d. all of the above Unit 2 Examination 86 BAM 418 - Small Business Management

7) Using the discounted future earnings approach, the buyer estimates:

a. the company's net income for the several years
b. the company's net income for the next six months
c. the company's net income for several years and then discounted back to the present value
d. the company's net asset for several years and then discounted back to the present value

8) In the market approach, the technique to calculate the value of a company is:

a. ROA
b. P/E
c. ROI
d. P/A

9) To avoid a bumpy transition, a business buyer should do the following:

a. listen to employees restructuring the company & devote time to selling your vision for the company to its key stakeholders
b. be honest with employees
c. concentrate on communicating with employees
d. all of the above

10) Potential investors tend to believe that if an entrepreneur can't develop a good plan:

a. then the entrepreneur is just like the majority of entrepreneurs and will probably do quite well
b. he/she probably lacks the discipline to run a business
c. he/she is probably the action-oriented sort of person they need running a business
d. he/she needs to hire a consultant to write the plan for him/her

11) Defining the target market's potential and describing its characteristics is part of the:

a. marketing strategy portion of the business plan
b. competitive analysis
c. description of the product line
d. business strategy section of the business plan

12) An explanation of how the product will be distributed is contained within the:

a. business strategy section of the business plan
b. description of the product line
c. marketing strategy portion of the business plan
d. competitive analysisUnit 2 Examination 87 BAM 418 - Small Business Management

13) A description of the key factors that will dictate the success of your business quality, price competitiveness, etc. should be contained in the ________ section of the business plan.

a. executive summary
b. market analysis
c. description of the business
d. competitor analysis

14) A ____________ is what the customer gains from the product or service feature.

a. feature
b. bonus
c. discount
d. benefit

15) An executive summary should be:

a. written first
b. 3 to 5 pages
c. a snapshot of the entire plan
d. all of the above

16) Which of the following expenses would be considered "fixed?"

a. rent
b. raw materials
c. utilities
d. wages

17) In the balance sheet, intangible assets include items such as:

a. goodwill
b. copyrights and patents
c. Both A and B
d. accounts receivable

18) Investors mainly want to see that entrepreneurs:

a. have realistic expectations about income and expenses
b. will make profit immediately
c. have inflated the projections
d. all of the above Unit 2 Examination 88 BAM 418 - Small Business Management

19) ________ measures the financing supplied by the company's owners against that supplied by its creditors and serve as a gauge of the depth of a company's debt.

a. Operating ratios
b. Liquidity ratios
c. Leverage ratios
d. Profitability ratios

20) In reviewing the company's balance sheet, Andy noticed that the total asset is stated as $5,500,000 and the total liability is $3,250,000. There is no paid-in capital or value for common stock. What are the company's retained earnings?

a. Can't determine with the information given
b. $2,250,000
c. $8,750,000
d. There is no retained earnings

21) Bill and Henry are discussing the volume of cash that has been coming into and going out of their business during the accounting period. They are discussing:

a. cash flow
b. net income
c. accounts receivable and payable
d. profit

22) An important source of credit information that collects information on small businesses that other reporting services ignore is:

a. Dun & Bradstreet
b. TRW
c. National Association of Credit Management
d. National Association of Small Business Owners

23) A bank account that technically never has funds in it but is tied to another master account so that when checks are presented for payment the master account is debited, permitting the company to use its own money during the "float" period, is called a/an:

a. zero balance account
b. accrual account
c. cash account
d. sweep accountUnit 2 Examination 89 BAM 418 - Small Business Management

24) The real benefit of barter for the entrepreneur is that:

a. it is "paid" for at the wholesale cost of doing business, yet it is credited at the retail price
b. it saves the small business owner between $50,000 and $150,000 a year on average
c. it is essentially without cost to the business owner
d. it is considered a depreciable item for tax purposes rather than as income

25) A firm whose sales fluctuate widely over a relatively short time might require a ________ cash budget.

a. quarterly
b. biweekly
c. monthly
d. weekly.