Arjun Nigam

Chapter 6 Summary

The major forms of business ownership are sole proprietorships, partnerships, and corporations.

What are the advantages and disadvantages of sole proprietorships?

The advantages of sole proprietorships include ease of starting and ending the business, being
your own boss, pride of ownership, retention of profits, no special taxes, and less regulation than
for corporations. The disadvantages include unlimited liability, limited financial resources,
difficulty in management, overwhelming time commitment, few fringe benefits, limited growth,
limited lifespan, and the possibility of paying higher taxes depending on the level of income.

2. The three key elements of a general partnership are common ownership, shared profits
and losses, and the right to participate in managing the operations of the business.

What are the main differences between general and limited partners?

General partners are owners (partners) who have unlimited liability and are active in managing
the company. Limited partners are owners (partners) who have limited liability and are not active
in the company.

What are the advantages and disadvantages of partnerships?

The advantages include more financial resources, shared management and pooled knowledge,
longer survival, and less regulation than for corporations. The disadvantages include unlimited
liability, division of profits, possible disagreements among partners, difficulty of termination,
and the possibility of paying higher taxes depending on the level of income.

3. A corporation is a legal entity with authority to act and have liability separate from its
owners.

What are the advantages and disadvantages of corporations?

The advantages include more money for investment, limited liability, size, perpetual life, ease of
ownership change, ease of drawing talented employees, and separation of ownership from
management. The disadvantages include initial costs, paperwork, size, difficulty of termination,
double taxation, and possible conflict with a board of directors.

What is a professional corporation?

A professional corporation is a Canadian-controlled private corporation engaged in providing

professional services. The member must be part of a profession that is governed by a
professional body that allows its members to practise through a corporation, as opposed to a sole
proprietorship or partnership. Members may include physicians and lawyers.

4. This decade has witnessed increased activity in the area of mergers.

What is a merger?
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A merger is the result of two firms forming one company. The three major types of mergers are
vertical mergers, horizontal mergers, and conglomerate mergers. A vertical merger is the joining
of two companies involved in different stages of related businesses. A horizontal merger is the
joining of two firms in the same industry. A conglomerate merger is the joining of firms in
completely unrelated industries.

What are leveraged buyouts, and what does it mean to take a company private?

Leveraged buyouts are attempts by managers and employees to borrow money and purchase the
company. Individuals who, together or alone, buy all of the stock for themselves are said to take
the company private.

5. A person can participate in the entrepreneurial age by buying the rights to market a new
product innovation in his or her area.

What are the benefits and drawbacks of being a franchisee?

The benefits include a nationally recognized name and reputation, a proven management system,
promotional assistance, and pride of ownership. Drawbacks include high franchise fees,
managerial regulation, shared profits, and transfer of adverse effects if other franchisees fail.

What is the major challenge to global franchises?

It may be difficult to transfer an idea or product that worked well in Canada to another culture. It
is essential to adapt to the region.

6. Co-operatives have a different purpose, control structure, and allocation of profit than
traditional for-profit businesses.

What is the role of a co-operative?

Co-operatives are organizations owned by members/customers. Some people form co- operatives
to give members more economic power than they would have as individuals. Small businesses
often form co-operatives to give them more purchasing, marketing, or product development
strength.

What types of co-operatives are found in the economy?

Co-operatives can be found in many sectors of the economy, including the finance, insurance,
agri-food and supply, wholesale and retail, housing, health, and service sectors.

1. Human resource management is the process of evaluating human resource needs, finding
people to fill those needs, and getting the best work from each employee by providing the right
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incentives and job environment, all with the goal of meeting organizational objectives. Like all
other types of management, human resource management begins with planning.

What are the steps in human resources planning?

The five steps are (1) preparing a human resources inventory of the organization’s employees;
(2) preparing a job analysis; (3) assessing future demand; (4) assessing future supply; and (5)
establishing a strategic plan for recruitment, selection, training and development, evaluation,
compensation, scheduling, and career management for the labour force.

2. Recruitment is the set of activities used to obtain a sufficient number of the right people
at the right time.

What methods do human resources managers use to recruit new employees?

Recruiting sources are classified as either internal or external. Internal sources include hiring
from within the firm (e.g., transfers and promotions) and employees who recommend others to
hire. External recruitment sources include advertisements, public and private employment
agencies, school placement offices, management consultants, professional organizations,
referrals, walk-in applications, and the Internet.

Why has recruitment become more difficult?

Legal restrictions complicate hiring practices. Finding suitable employees can also be made more
difficult if companies are considered unattractive workplaces.

3. Selection is the process of gathering and interpreting information to decide which

applicants should be hired.

What are the five steps in the selection process?

The steps are (1) obtaining complete application forms; (2) conducting initial and follow- up
interviews; (3) giving employment tests; (4) confirming background information; and (5)
establishing a trial period of employment.

What are some of the activities used for training?

After assessing the needs of the organization and the skills of the employees, training programs
are designed that may include the following activities: employee orientation, on-the-job training,
apprenticeship programs, off-the-job training, online training, vestibule training, and job
simulation. The effectiveness of the training is evaluated at the conclusion of the activities.

What methods are used to develop managerial skills?

Management development methods include on-the-job coaching, understudy positions, job

rotation, and off-the-job courses and training.

How does networking fit in this process?

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Networking is the process of establishing contacts with key managers within and outside the
organization to get additional development assistance.

4. A performance appraisal is an evaluation of the performance level of employees against

established standards to make decisions about promotions, compensation, additional training, or
firing.

How is performance evaluated?

The steps are (1) establish performance standards; (2) communicate those standards; (3) evaluate
performance; (4) discuss results; (5) take corrective action when needed; and (6) use the results
for decisions about promotions, compensation, additional training, or firing.

What kind of compensation systems are used?

They include salary systems, hourly wages, piecework, commission plans, bonus plans, profit-
sharing plans, and stock options.

What types of compensation systems are appropriate for teams?

The most common are profit-sharing and skill-based compensation programs. It is also important
to reward outstanding individual performance within teams.

What are fringe benefits?

Fringe benefits include such items as sick leave, vacation pay, pension plans, and health plans
that provide additional compensation to employees beyond base wages. Many firms offer
cafeteria-style fringe benefits plans, in which employees can choose the benefits they want, up to
a certain dollar amount.

Chapter 11 Summary

1. Finance comprises those functions in a business responsible for acquiring funds for the
firm, managing funds within the firm (e.g., preparing budgets and doing cash flow analysis), and
planning for the expenditure of funds on various assets.

What are the most common ways in which firms fail financially?

The most common financial problems are (1) undercapitalization, (2) poor control over cash
flow, and (3) inadequate expense control.

What do financial managers do?

Financial managers plan, budget, control funds, obtain funds, collect funds, audit, manage taxes,
and advise top management on financial matters.
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2. Financial planning involves forecasting short-term and long-term needs, budgeting, and
establishing financial controls.

What are the three budgets of finance?

The operating (master) budget summarizes the information in the other two budgets; it projects
dollar allocations to various costs and expenses given various revenues. The capital budget is the
spending plan for expensive assets, such as property, plant, and equipment. The cash budget is
the projected cash inflows and outflows for a period and the balance at the end of a given period.

3. During the course of a business’s life, its financial needs shift considerably.

What are the major financial needs for firms?

Businesses have financial needs in four major areas: (1) managing day-to-day needs of the
business, (2) controlling credit operations, (3) acquiring needed inventory, and (4) making
capital expenditures.

What’s the difference between short-term and long-term financing?

Short-term financing refers to funds that will be repaid in less than one year, whereas long-term
financing refers to funds that will be repaid over a specific time period of more than one year.

What’s the difference between debt financing and equity financing?

Debt financing refers to funds raised by borrowing (going into debt), whereas equity financing is
raised from within the firm (through retained earnings) or by selling ownership in the company
to venture capitalists or by issuing shares to other investors.

4. Sources of short-term financing include trade credit, promissory notes, family and
friends, commercial banks and other financial institutions, factoring, and commercial paper.

Why should businesses use trade credit?

Trade credit is the least expensive and most convenient form of short-term financing. Businesses
can buy goods today and pay for them sometime in the future.

What’s a line of credit?

It is an agreement by a bank to lend up to a specified amount of money to the business at any

time, as long as certain conditions are met. A revolving credit agreement is a line of credit that
guarantees a loan will be available—for a fee.

What’s the difference between a secured loan and an unsecured loan?

An unsecured loan has no collateral backing it. Secured loans have collateral pledged as security
such as accounts receivable, inventory, or other property of value.
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Is factoring a form of secured loan?

No, factoring means selling accounts receivable at a discounted rate to a factor (an intermediary
that pays cash for those accounts).

What’s commercial paper?

Commercial paper is a corporation’s unsecured promissory note maturing in 365 days or less.

One of the important functions of a finance manager is to obtain long-term financing.

What are the major sources of long-term financing?

Debt financing involves the sale of bonds and long-term loans from banks and other financial
institutions. Equity financing is obtained through the sale of company stock, from the firm’s
retained earnings, or from venture capital firms.

What are the two major forms of long-term financing?

Debt financing comes from two sources: selling bonds and borrowing from individuals, banks,
and other financial institutions. Bonds can be secured by some form of collateral or can be
unsecured. The same is true of loans.

Chapter 12 Summary

1. Marketing is the process of determining customer wants and needs and then providing
customers with goods and services that meet or exceed these expectations.

How has marketing changed over time?

During the production era, marketing was largely a distribution function. Emphasis was on
producing as many goods as possible and getting them to markets. By the early 1920s, during the
sales era, the emphasis turned to selling and advertising to persuade customers to buy the
existing goods produced by mass production. After the Second World War, the tremendous
demand for goods and services led to the marketing concept era, during which businesses
recognized the need to be responsive to customers’ needs. During the 1990s, marketing entered
the customer relationship era. The idea became one of trying to enhance customer satisfaction
and stimulate long-term customer loyalty.

What are the three parts of the marketing concept?

The three parts of the marketing concept are (1) a customer orientation, (2) a service orientation,
and (3) a profit orientation (that is, market goods and services that will earn the firm a profit and
enable it to survive and expand to serve more customer wants and needs).

What kinds of organizations are involved in marketing?

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All kinds of organizations use marketing, both for-profit and non-profit organizations. Examples
of non-profit organizations include the provinces and other government agencies, charities (e.g.,
churches), politicians, and schools.

2. The marketing mix consists of the four Ps of marketing: product, price, place, and
promotion.

How do marketers implement the four Ps?

The idea is to design a product that people want, price it competitively, place it in a location
where consumers can find it easily, and promote it so that consumers know it exists. While this
chapter briefly outlined these Ps, they will be discussed in more detail in Chapter 15.

3. Marketing research is the analysis of markets to determine opportunities and challenges

and to find the information needed to make good decisions.

What are the steps to follow when conducting marketing research?

(1) Define the problem or opportunity and determine the present situation, (2) collect data, (3)
analyze the research data, and (4) choose the best solution and implement it.

What are different methods used to gather research?

Research can be gathered through secondary data (information that has already be compiled by
others) and published in sources such as journals, newspapers, directories, databases, and internal
sources. Primary data (data that you gather yourself) includes observation, surveys, interviews,
and focus groups.

What is environmental scanning?

Environmental scanning is the process of identifying the factors that can affect mar- keting
success. Marketers pay attention to all environmental factors that create opportunities and
threats.

What are some of the more important environmental trends in marketing?

The most important global and technological change is probably the growth of the Internet. An
important technological change is the growth of consumer databases. Using consumer databases,
companies can develop products and services that closely match the needs of customers. There
are a number of social trends that marketers must monitor to maintain their close relationship
with customers—population growth and shifts, for example. Of course, marketers must also
monitor the dynamic competitive environment and pay attention to the economic environment.

4. The process of dividing the total market into several groups whose members have similar
characteristics is called market segmentation.

What are some of the ways that marketers segment the consumer market?
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Geographic segmentation means dividing the market into different regions. Segmentation by age,
income, and education level are methods of demographic segmentation. We could study a
group’s personality or lifestyle (activities, interests, and opinions) to understand psychographic
segmentation. Behavioural segmentation divides the market based on behaviour with or toward a
product. Different variables of behavioural segmentation include benefits sought, usage rate, and
user status. The best segmentation strategy is to use as many of these segmentation bases as
possible to come up with a consumer profile (a target market) that’s sizable, reachable, and
profitable.

What is the difference between mass marketing and relationship marketing?

Mass marketing means developing products and promotions to please large groups of people.
Relationship marketing tends to lead away from mass production and toward custom-made
goods and services. Its goal is to keep individual customers over time by offering them goods or
services that meet their needs.

What are some of the factors that influence the consumer decision-making process?

See Figure 14.7 for some of the major influences on consumer decision making. Some other
factors in the process are learning, reference group, culture, subculture, and cognitive
dissonance.

5. The B2B market consists of manufacturers, intermediaries such as retailers, institutions

(e.g., hospitals, schools, and charities), and the government.

What makes the business-to-business market different from the consumer market?

The number of customers in the B2B market is relatively small, and the size of business
customers is relatively large. B2B markets tend to be geographically concentrated, and industrial
buyers generally are more rational than ultimate consumers in their selection of goods and
services. B2B sales tend to be direct, and there is much more emphasis on personal selling in
B2B markets than in consumer markets.