Foundations of Business 4th Edition Pride Solutions Manual 1

Foundations of Business 4th Edition Pride
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CHAPTER 5
Small Business, Entrepreneurship,

and Franchises
INSTRUCTOR MANUAL RESOURCES

5.1 A Word from the Authors ..................................................................................................... 155
5.2 Transition Guide ................................................................................................................... 155
5.3 Quick Reference Guide ......................................................................................................... 157
5.4 Learning Objectives .............................................................................................................. 158
5.5 Brief Chapter Outline ............................................................................................................ 158
5.6 Comprehensive Lecture Outline ........................................................................................... 159
5.7 Textbook Answer Keys......................................................................................................... 167
5.7a Concept Checks .................................................................................................. 167
5.7b Discussion Questions .......................................................................................... 170
5.7c Video Case: From Two Men and a Truck to 220 Franchises
and 1,400 Trucks ................................................................................................. 171
5.7d Building Skills for Career Success ..................................................................... 172
5.8 Quizzes I and II ..................................................................................................................... 174
5.9 Answer Key for Quizzes I and II ......................................................................................... 176
154 © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 5 Small Business, Entrepreneurship, and Franchises 155
5.10 Classroom Exercises ............................................................................................................. 177

5.10a Homework Activities .......................................................................................... 177
5.10b Classroom Activities ........................................................................................... 177
5.10c Exercise Handouts .............................................................................................. 178
Running a Business—Part 2 ................................................................................................. 187
Building a Business Plan—Part 2 ......................................................................................... 188
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
156 Chapter 5 Small Business, Entrepreneurship, and Franchises
5.1 A WORD FROM THE AUTHORS

Our study of small business—the final chapter in Part 2, “Business Ownership and
Entrepreneurship”—is a logical sequel to Chapter 4, “Choosing a Form of Business Ownership.”
Nine out of ten business firms in the United States are classified as “small,” and many business
students will be employed in small companies or will become entrepreneurs themselves one day.
Accordingly, we begin Chapter 5 with a profile of the small business. We define small business, list
the industries that are widely represented in small firms, analyze some of the characteristics of the
entrepreneurs who start small businesses, and explain why small businesses fail. The importance of
small business in our economy is acknowledged with respect to four main areas: small businesses
are sources of technical innovation, employers, spurs to competition, and specialized marketers.
Following a discussion of the advantages and disadvantages of smallness, we emphasize the
importance of a business plan and then turn our attention to the Small Business Administration,
noting the various forms of assistance it offers to small firms.
Finally, we examine franchising, an increasingly popular form of small-business ownership. We use
an extended illustration to explain how a franchise originates, and we discuss the advantages and
disadvantages to both franchisor and franchisee. We conclude the chapter with global perspectives in
small businesses.
5.2 TRANSITION GUIDE
New in Chapter 5: Small Business, Entrepreneurship, and Franchises

 A new Inside Business feature describes how Dunkin’ Donuts, as a franchisor, works with
entrepreneurs who want to own their own business.
 The introductory paragraphs have been revised and updated with current data from the Small
Business Administration.
 The “Women as Small-Business Owners” section includes new data.
 A new Career Success feature, “Is Entrepreneurship in Your Future?,” describes how some
entrepreneurs realize at an early age that they want to start a business.
 Table 5-2, “U.S. Business Start-ups, Closures, and Bankruptcies,” has been updated.
 The “Providing Employment” section has been revised using the latest data.
 A new Entrepreneurial Success feature, “Students by Day, Entrepreneurs by Night,” describes
how a growing number of students are becoming entrepreneurs even before they graduate.
 A new Personal Apps feature cautions students that writing a business plan won’t guarantee their
success, but it will help them think through many of the issues that can trip up entrepreneurs.
 The “SCORE” section has been revised and includes new data.
 The “SBA Financial Assistance” section has been revised with a new example of the agency
helping 16,800 businesses after Hurricane Sandy hit the Northeast.
 The section “Small-Business Investment Companies” includes the most recent available data.
 “The Growth of Franchising” section has been revised with new information about the National
Black McDonald’s Operators Association.
 In the section “Global Perspectives in Small Business,” a new example explains that more than
70 percent of the world’s purchasing power is outside of the United States and 85 percent of the
world’s economic growth will be overseas over the next five years.
 The Murray’s Cheese video case has been replaced with a new video case entitled “From Two
Men and a Truck to 220 Franchises and 1,400 Trucks.” This company’s annual revenue is $275
million, and it handles more than 400,000 moves every year.
 The Building Skills for Career Success section contains a new Social Media Exercise that
describes how businesses are using social networks.
5.3 QUICK REFERENCE GUIDE

Instructor Resource Location
Transition Guide IM, pp. 155–156
Learning Objectives Textbook, p. 127; IM, p. 158
Brief Chapter Outline IM, pp. 158–159
Comprehensive Lecture Outline IM, pp. 159–166
At Issue: Should fast-food restaurants be curtailed IM, p. 166
from national franchising?
Career Success Is Entrepreneurship in Your Future? Textbook, p. 133
Entrepreneurial Success Students by Day, Entrepreneurs Textbook, p. 138
by Night
Inside Business Dunkin’ Brands Helps Franchisees Brew Textbook, p. 128
up Sales
Marginal Key Terms List Textbook, p. 151
Concept Checks Textbook, pp. 130, 134, 136, 140, 144, 145, and 149
Questions and Suggested Answers, IM, pp. 167–170
Discussion Questions Textbook, p. 151
Questions and Suggested Answers, IM, pp. 170–171
Video Case (From Two Men and a Truck to 220 Textbook, p. 153
Franchises and 1,400 Trucks) and Questions Questions and Suggested Answers, IM, pp. 171–172
Building Skills for Career Success Textbook, p. 154
Suggested Answers, IM, pp. 172–173
IM Quiz I & Quiz II IM, pp. 174–176
Answers, IM, p. 176
Classroom Exercises IM, pp. 177–178
Running a Business—Part 2 Textbook, pp. 155–156; IM, p. 187
Building a Business Plan—Part 2 Textbook, p. 157; IM, p.188
5.4 LEARNING OBJECTIVES

After studying this chapter, students should be able to:
1. Define what a small business is and recognize the fields in which small businesses are
concentrated.
2. Identify the people who start small businesses and the reasons why some succeed and many fail.
3. Assess the contributions of small businesses to our economy.
4. Describe the advantages and disadvantages of operating a small business.
5. Explain how the Small Business Administration helps small businesses.
6. Explain the concept and types of franchising.
7. Analyze the growth of franchising and its advantages and disadvantages.
5.5 BRIEF CHAPTER OUTLINE

I. Small Business: A Profile
A. The Small-Business Sector
B. Industries That Attract Small Businesses
1. Distribution Industries
2. Service Industries
3. Production Industries
II. The People in Small Businesses: The Entrepreneurs

A. Characteristics of Entrepreneurs
B. Other Personal Factors
C. Motivation
D. Women as Small-Business Owners
E. Teenagers as Small-Business Owners
F. Why Some Entrepreneurs and Small Businesses Fail
III. The Importance of Small Businesses in Our Economy

A. Providing Technical Innovation
B. Providing Employment
C. Providing Competition
D. Filling Needs of Society and Other Businesses
IV. The Pros and Cons of Smallness

A. Advantages of Small Business
1. Personal Relationships with Customers and Employees
2. Ability to Adapt to Change
3. Simplified Record Keeping
4. Independence
5. Other Advantages
B. Disadvantages of Small Business

1. Risk of Failure
2. Limited Potential
3. Limited Ability to Raise Capital
C. The Importance of a Business Plan
D. Components of a Business Plan
V. The Small Business Administration

A. SBA Management Assistance
1. Management Courses and Workshops
2. SCORE
B. Help for Minority-Owned Small Businesses
1. Small-Business Institutes
2. Small-Business Development Centers
3. SBA Publications
C. SBA Financial Assistance
1. Regular Business Loans
2. Small-Business Investment Companies
VI. Franchising
A. What Is Franchising?
B. Types of Franchising
VII. The Growth of Franchising

A. Are Franchises Successful?
B. Advantages of Franchising
1. To the Franchisor
2. To the Franchisee
C. Disadvantages of Franchising
VIII. Global Perspectives in Small Business
5.6 COMPREHENSIVE LECTURE OUTLINE

I. SMALL BUSINESS: A PROFILE. According to the Small Business Administration
(SBA), a small business is “one which is independently owned and operated for profit and is
not dominant in its field.” Table 5-1 provides the SBA small-business size standards for
various industries. The SBA periodically revises and simplifies its small-business size
regulations. Most small firms have annual sales well below the maximum limits in the SBA
guidelines.
Teaching Tip: The “So You Think You Know Entrepreneurs?” fun quiz can be used here.
A. The Small-Business Sector. In the United States, it typically takes less than a week and
$600 to establish a business as a legal entity. There are about 27.9 million businesses in
this country. Approximately 18,500 of these employ more than 500 workers. According
to a recent study, 69 percent of new businesses survive at least two years, about 50
percent survive at least five years, and 31 percent survive at least 10 years. The primary
reason for these failures is mismanagement resulting from a lack of business know-how.
B. Industries That Attract Small Businesses. Small enterprise ranges from corner
newspaper vending to the development of optical fibers. The following industries are
dominated by small businesses:
 Real estate, rental, and leasing: 74 percent
 Leisure and hospitality services: 61 percent
 Construction: 86 percent
The various kinds of businesses are generally grouped into three broad categories:
1. Distribution Industries. This category includes retailing, wholesaling,
transportation, and communications—industries that are concerned with the
movement of goods from producers to consumers—and it accounts for about 33
percent of all small businesses.
2. Service Industries. This category accounts for about 48 percent of all small
businesses. Of these, about 75 percent provide nonfinancial services, and about 8
percent offer financial services. An increasing number of self-employed Americans
are running service businesses from home.
3. Production Industries. This category includes the construction, mining, and
manufacturing industries. It accounts for about 19 percent of all small businesses.
II. The People in Small Businesses: The Entrepreneurs. The United States is quite
entrepreneurial when compared with other countries. Small businesses are typically managed
by the people who started and own them. More than 70 percent of Americans would prefer
being an entrepreneur to working for someone else. This compares with 46 percent of adults
in Western Europe and 58 percent of adults in Canada.
A. Characteristics of Entrepreneurs. Entrepreneurial spirit is the desire to create a new
business.
B. Other Personal Factors. The following personal factors contribute to small-business
success:
1. Independence.
2. A desire to determine one’s own destiny.
3. A willingness to find and accept a challenge.
4. Family background.
Teaching Tip: Ask students how many of them have parents who run their own small business and if
they are interested in small business themselves.
5. Age. More than 70 percent of people who start their own businesses are between
24 and 44 years old. (See Figure 5-1.)
C. Motivation. The motivation to start a business may come from losing a job, having an
idea for a new product, or as a result of commercializing a hobby.
D. Women as Small-Business Owners
1. Women make up 51 percent of the U.S. population. According to the SBA, women
owned at least 30 percent of all small businesses in 2012.
2. Women own 66 percent of the home-based businesses in the United States, and the
number of men in home-based businesses is growing rapidly.
3. About 7.8 million women-owned businesses in the United States provide almost
7.6 million jobs and generate $1.2 trillion in sales.
4. Women-owned businesses have proven that they are more successful. They are
financially sound, and their risk of failure is lower than average.
5. Just over half of small businesses are home based, and 91 percent have no employees.
E. Teenagers as Small-Business Owners. High-tech teen entrepreneurship is definitely
exploding.
1. Young entrepreneurs must juggle school, their social life, and a high-tech
workload.
2. Knowledge and ability—especially management ability—are probably the most
important factors involved.
F. Why Some Entrepreneurs and Small Businesses Fail. Small businesses are prone to
failure. Capital, management, and planning are the key ingredients in the survival of a
small business.
1. Small businesses can experience a number of money-related problems, such as
insufficient capital for start-up and continuous cash flow obstacles.
2. Money, time, personnel, and inventory need to be effectively managed if a small
business is to succeed.
3. Success and expansion sometimes lead to problems. The entrepreneur must plan
carefully and adjust to potentially new and disruptive situations.
III. THE IMPORTANCE OF SMALL BUSINESSES IN OUR ECONOMY

A. Providing Technical Innovation. Studies show that the incidence of innovation among
small-business workers is significantly higher than among workers in large businesses.
Small firms produce two and a half times as many innovations as large firms relative to
the number of persons employed. Small firms employ 43 percent of all high-tech
workers and produce 16 to 17 more patents per employee than large patenting firms.
B. Providing Employment. Small businesses represent 99.7 percent of all employers,

employ over one-half of the private workforce, and provide about two-thirds of the net
new jobs added to our economy.
C. Providing Competition. Small businesses challenge larger, established firms in many
ways, prompting them to become more efficient and more responsive to consumer
needs.
D. Filling Needs of Society and Other Businesses. Many large firms may be unwilling or
unable to meet the special needs of smaller groups of consumers. Such groups create
almost perfect markets for small companies. Small firms also provide a variety of goods
and services to one another and to much larger firms.
Teaching Tip: Ask your students what unfulfilled needs might exist in their communities or consider
using the “Most Creative Business/Product Combination Contest” here.
IV. THE PROS AND CONS OF SMALLNESS. For many small-business owners, the
advantages of remaining small far outweigh the disadvantages.
A. Advantages of Small Business
1. Personal Relationships with Customers and Employees. The owners of retail
shops get to know many of their customers by name and deal with them on a
personal basis. Through such relationships, small-business owners often become
involved in social, cultural, and political affairs within the community. The
personal service offered to customers is a major competitive weapon of small
businesses.
2. Ability to Adapt to Change. As his or her own boss, the owner-manager of a
small business does not need anyone’s permission to adapt to change. Through
customer relationships, owners are made aware of changes in people’s needs as
well as the activities of competitors.
3. Simplified Record Keeping. Many small firms need to keep only a simple set of
records.
4. Independence. Small-business owners don’t have to punch in and out, bid for
vacation times, take orders from superiors, or worry about being fired or laid off.
5. Other Advantages. Small-business owners also enjoy a number of the advantages
of sole proprietorship, which were discussed in Chapter 4.
B. Disadvantages of Small Business
1. Risk of Failure. About 50 percent of small firms close their doors within the first
five years.
2. Limited Potential. Many small firms are simply the means of making a living for
the owner and his or her family. Such businesses are unlikely to grow much. Also,
employees have limited opportunity for advancement.
3. Limited Ability to Raise Capital. Small businesses typically have a limited ability
to obtain capital. As shown in Figure 5-2, most small-business financing comes out
of the owner’s pocket.
C. The Importance of a Business Plan. A business plan is a carefully constructed guide
for the person starting a business. Potential investors examine the business plan to
determine if they would like to invest in or help finance a new venture.
D. Components of a Business Plan
1. The business plan should be easy to read, uncluttered, and complete. (See Table 5-
3 for the components of a business plan.)
2. Table 5-4 provides a business plan checklist. The plan should answer the following
four questions:
a) What exactly are the nature and mission of the new venture?
b) Why is this new enterprise a good idea?
c) What are the businessperson’s goals?
d) How much will the new venture cost?
V. THE SMALL BUSINESS ADMINISTRATION. The Small Business Administration

(SBA), created by Congress in 1953, is a governmental agency that assists, counsels, and
protects the interests of small businesses in the United States. It helps people get into
business and stay in business. The agency provides assistance to owners and managers of
prospective, new, and established small businesses.
A. SBA Management Assistance. The SBA places special emphasis on improving the
management ability of the owners and managers of small businesses. Recently, the SBA
indicated that it provided management and technical assistance to nearly 1 million small
businesses.
1. Management Courses and Workshops. The management courses offered by the
SBA cover all the functions, duties, and roles of managers. The Small Business
Training Network is an online training network consisting of 23 courses,
workshops, and resources.
2. SCORE. The Service Corps of Retired Executives (SCORE) is a group of more
than 13,000 retired businesspeople who volunteer their services to small businesses
through the SBA. A small-business owner can request free counseling from
SCORE. Recently, SCORE volunteers served over 523,800 small-business people.
B. Help for Minority-Owned Small Businesses. The SBA makes a special effort to assist
those minorities who want to start small businesses or expand existing ones. The
Minority Business Development Agency awards grants to develop and increase business
opportunities for members of racial and ethnic minorities. Helping women become
entrepreneurs is also a special goal of the SBA.
1. Small-Business Institutes. A small-business institute (SBI) is a group of senior

and graduate students in business administration who provide management
counseling to small businesses.
2. Small-Business Development Centers. A small-business development center
(SBDC) is a university-based group that provides individual counseling and
practical training to owners of small businesses. In 2012, there were over 900
SBDC locations, primarily at colleges and universities, assisting small businesses.
3. SBA Publications. The SBA issues management, marketing, and technical
publications dealing with hundreds of topics of interest to present to prospective
managers of small firms.
C. SBA Financial Assistance. The SBA offers special financial assistance programs that
cover a variety of situations. For example, the Supplemental Terrorist Activity Relief
(STAR) program has made $3.7 billion in loans to 8,202 small businesses harmed or
disrupted by the September 11 terrorist attacks. In early 2013, the SBA guaranteed over
$1 billion in loans to businesses, homeowners, and renters impacted by Hurricane
Sandy. However, its primary function is to guarantee loans to eligible businesses.
1. Regular Business Loans. Most of the SBA’s business loans are actually made by
private lenders such as banks, but repayment is partially guaranteed by the agency.
The average size of an SBA-guaranteed business loan is about $300,000 for an
average duration of about eight years.
2. Small-Business Investment Companies. Venture capital is money invested in small
and sometimes struggling firms that have the potential to become very successful. To
help such companies, the SBA licenses, regulates, and provides financial assistance
to small-business investment companies (SBICs), which are privately owned firms
that provide venture capital to small enterprises that meet their investment standards.
SBICs are intended to be profit-making organizations. However, SBA aid allows
them to invest in small businesses that would not otherwise attract venture capital.
VI. FRANCHISING. A franchise is a license to operate an individually owned business as

though it were part of a chain of outlets or stores. Often, the business itself is also called a
franchise.
A. What Is Franchising?
1. Franchising is the actual granting of a franchise.
2. The franchisor is an individual or organization granting a franchise.
3. The franchisee is a person or organization purchasing a franchise. Table 5-5 lists
some items that would be covered in a typical franchise agreement.
B. Types of Franchising. Franchising arrangements fall into three categories.
1. A manufacturer authorizes a number of retail stores to sell a certain brand-name
item.
2. A producer licenses distributors to sell a given product to retailers.
3. The franchisor supplies brand names, techniques, or other services, instead of a

complete product. The franchisor’s primary responsibility is the careful
development and control of marketing strategies.
VII. The Growth of Franchising. Franchising has experienced enormous growth since the mid-
1970s. This growth has generally paralleled the expansion of the fast-food industry.
A. Are Franchises Successful?
1. The success rate for businesses owned and operated by franchisees is significantly
higher than the success rate for other independently owned small businesses.
2. Franchising, however, is not a guarantee of success for either franchisees or
franchisors.
Teaching Tip: Display a list of the top 10 franchises. Ask your students which of these franchises
they would invest in and why. This could also be a short group or partner activity.
B. Advantages of Franchising
1. To the Franchisor
a) The franchisor gains fast and well-controlled distribution of its products
without incurring the high cost of constructing and operating its own outlets.
b) The franchisor benefits from the fact that the franchisee, usually a sole
proprietor, is highly motivated to succeed. The success of the franchise means
more sales, which translate into higher royalties for the franchisor.
2. To the Franchisee
a) The franchisee gets the opportunity to start a business with limited capital
and to make use of the business experience of others. If business problems
arise, the franchisor gives the franchisee guidance and advice.
b) The franchisee receives materials to use in local advertising and can take
part in national promotional campaigns sponsored by the franchisor.
C. Disadvantages of Franchising. The disadvantages of franchising mainly affect the
franchisee, because the franchisor retains a great deal of control. The franchisor ’s
contract can dictate every aspect of the business.
1. Franchise holders typically pay a one-time franchise fee plus continuing royalty
and advertising fees collected as a percentage of sales.
2. Franchise operators must work hard, often putting in 10- and 12-hour days, six
days a week.
3. Sometimes a franchise is so successful that the franchisor opens its own outlet
nearby, in direct competition.
4. The International Franchise Association advises prospective franchise
purchasers to investigate before investing and to exercise caution before buying.
VIII. Global Perspectives in Small Business

A. For American small businesses, the world is becoming smaller.
B. The SBA offers help to the nation’s small-business owners who want to enter the world
markets.
C. International trade will become more important to small-business owners as they face
unique challenges in the new century.
Teaching Tip: The “Ok—I Have an Idea—Now What?” group activity could be used here. It takes
approximately 20 minutes.
At Issue
Franchising has been both heralded and condemned in this country. There are many
advantages and disadvantages to franchise ownership for both the franchisee and the
franchisor, as well as for the general public. Some critics claim that fast-food franchises
have all but eliminated the culinary arts from this country. Should fast-food restaurants be
curtailed from national franchising?
For Franchising Against Franchising

1. Franchising provides national and 1. Franchising destroys the local
sometimes international consistency entrepreneur’s incentive inasmuch as
of products and services for people infant businesses cannot compete
who must travel and may be initially with large corporate
uncertain about local businesses. franchises.
2. Franchises bring jobs and incomes to 2. When a franchise is sold, many of the
local communities that smaller, local franchise dollars and subsequent
businesses cannot create. installment percentages are returned
to the corporate office for use in other
communities. As a result, money is
actually removed from local
communities.
3. Franchising allows people of 3. Franchising rarely allows an owner-
moderate and wealthy means a manager enough flexibility to
meaningful and convenient way to creatively manage, develop new ideas
invest in worthwhile businesses that and ways of doing things, or “fine-
directly serve the public. It also tune” the business to local needs.
enables those with less business
experience to own their own business
with less risk.
5.7 TEXTBOOK ANSWER KEYS
5.7a Concept Checks

Concept Check (p. 130)
1. What information would you need to determine whether a particular business is small
according to SBA guidelines?
The SBA’s guidelines for smallness are as follows:
a. Manufacturing, mining industries: maximum number of employees: 500
b. Wholesale trade: maximum number of employees: 100
c. Agriculture: maximum annual receipts of up to $750,000
d. Retail trade: maximum annual sales or receipts of $7 million
e. General and heavy construction: maximum average annual receipts of $33.5 million
f. Dredging: maximum average annual receipts of $20 million
g. Special trade contractors: maximum average annual sales of up to $14 million
h. Travel agencies: maximum average annual receipts of $3.5 million
i. Business and personal services: maximum annual receipts of up to $7 million, except for
architectural, engineering, surveying, mapping, dry cleaning, and carpet cleaning: up to
$4.5 million
2. Which two areas of business generally attract the most small business? Why are these
areas attractive to small business?
Real estate, hospitality, and construction industries attract many small businesses. These
industries are attractive because entrepreneurs are generally more familiar with them. They may
also require a lower initial investment than other industries.
3. Distinguish among service industries, distribution industries, and production industries.
Service industries provide nonfinancial and financial services to the public. Distribution
industries include retailing, wholesaling, transportation, and communications. Production
industries include construction, mining, and manufacturing.
1. What kinds of factors encourage certain people to start new businesses?
The factors that prompt certain people to start new businesses are the desire to create a new
business, independence, the desire to determine one’s own destiny, and the willingness to find
and accept a challenge.
2. What are the major causes of small-business failure? Do these causes also apply to larger
businesses?
The major causes of small-business failure are (1) lack of experience, (2) lack of money,
(3) the wrong location, (4) mismanagement of inventory, (5) poor credit-granting practices,
and (6) poorly planned expansion. The last three causes also apply to larger businesses.
1. Briefly describe four contributions of small business to the American economy.
Small businesses contribute to the American economy in that they (1) provide technical
innovation, (2) employ approximately one-half of all nongovernment workers, (3) provide
competition, and (4) fill the needs of society and other businesses.
2. Give examples of how small businesses fill needs of society and other businesses.
Small firms provide a variety of goods and services to each other and to much larger firms.
Sears, Roebuck & Co. purchases merchandise from approximately 12,000 suppliers—and most
of them are small businesses. General Motors relies on more than 32,000 companies for parts
and supplies and depends on more than 11,000 independent dealers to sell its automobiles and
trucks. Large firms generally buy parts and assemblies from smaller firms; it is less expensive
than manufacturing the parts in their own factories. This lower cost eventually is reflected in the
price that consumers pay for their products. It is clear that small businesses are a vital part of
our economy and that, as consumers and as members of the labor force, we all benefit
enormously from their existence.
1. What are the major advantages and disadvantages of smallness in business?
The advantages of smallness in business are (1) personal relationships with customers and
employees, (2) the ability to adapt to change, (3) simplified record keeping, (4) independence,
(5) the opportunity to keep all profits, and (6) the low cost of going into business. The
disadvantages of smallness are (1) risk of failure, (2) limited potential, (3) limited ability to
obtain capital, (4) limited management skills of owners, and (5) lack of opportunity.
2. What are the major components of a business plan? Why should an individual develop a
business plan?
As illustrated in Table 5-3, the components of a business plan are the introduction, executive
summary, benefits to the community, company and industry, management team, manufacturing
and operations plan, labor force, marketing plan, financial plan, exit strategy, critical risks and
assumptions, and appendix. The business plan should help the entrepreneur answer the
following questions:
a. What exactly is the nature and mission of the new venture?
b. Why is this new enterprise a good idea?
c. What are the businessperson’s goals?
d. How much will the new venture cost?

1. Identify six ways in which the SBA provides management assistance to small businesses.
The SBA provides the following assistance:
a. Management courses and workshops
b. Service Corps of Retired Executives: a group of retired business executives who volunteer
their services to small-business owners
c. Help for minority-owned small businesses
d. Small-business institutes: groups of senior and graduate students in business administration
who provide management counseling
e. Small-business development centers: university-based groups that provide individual
counseling and practical training to small-business owners
f. SBA publications
2. Identify two ways in which the SBA provides financial assistance to small businesses.
a. The SBA grants regular business loans.
b. Small-business investment companies (SBICs) provide venture capital to small firms that
have the potential to become very successful.
3. Why does the SBA concentrate on providing management and financial assistance to
small business?
The SBA was created to provide assistance to prospective new and established small businesses
so that they could compete with larger, more established firms.
4. What is venture capital? How does the SBA help small businesses to obtain it?
Venture capital is money that is invested in small and sometimes struggling firms that have the
potential to become very successful. The SBA licenses, regulates, and provides financial
assistance to small-business investment companies (SBICs). SBICs provide financial assistance
(venture capital) to small enterprises. The SBA aid allows SBICs to invest in small businesses
that would not otherwise attract venture capital.
1. Explain the relationships among a franchise, the franchisor, and the franchisee.
The franchise is an individually owned business operated as though it were part of a chain. The
franchisor is the individual or firm granting the franchise. The franchisee is the person or firm
purchasing the franchise.
2. Describe the three general categories of franchising arrangements.
Franchising arrangements fall into three general categories. In the first approach, a
manufacturer authorizes a number of retail stores to sell a certain brand-name item. In the
second type of franchising arrangement, a producer licenses distributors to sell a given product
to retailers. In a third form of franchising, a franchisor supplies brand names, techniques, or
other services instead of a complete product.

1. What does the franchisor receive in a franchising agreement? What does the franchisee
receive? What does each provide?
The franchisor receives fast and selective distribution of its products without incurring high
costs. The franchisor provides a known and advertised business name, management skills, a
method of doing business, and the required training and materials. The franchisee gets the
opportunity to start a business with limited capital and to make use of the business experience
of others. If problems arise, the franchisor gives the franchisee guidance and advice. The
franchisee provides labor and capital.
2. Cite one major benefit of franchising for the franchisor. Cite one major benefit of
franchising for the franchisee.
The major advantage for the franchisor is fast and selective distribution of its products without
incurring the high cost of constructing and operating its own outlets. The major advantage for
the franchisee is the opportunity to start a business with limited capital.
3. How does the SBA help small-business owners who want to enter the world markets?
The SBA’s efforts include counseling small firms on how and where to market overseas,
matching U.S. small-business executives with potential overseas customers, and helping
exporters to secure financing. The agency brings small U.S. firms into direct contact with
potential overseas buyers and partners. The SBA International Trade Loan program provides
guarantees of up to $5 million in loans to small-business owners. These loans help small firms
in expanding or developing new export markets.
5.7b Discussion Questions

1. Most people who start small businesses are aware of the high failure rate and the reasons
for it. Why, then, do some take no steps to protect their firms from failure? What steps
should they take?
Entrepreneurs are often too impulsive and eager to get started. They go ahead without paying
much attention to planning. They should take the following steps before going into business:
a. Get advice on management skills from experienced people in business.
b. Have enough capital not just to start the business but to keep it going during the building-up
period.
c. Investigate the right location for the business.
d. Get advice on inventory control and credit-granting practices.
e. Wait to expand until they have sufficient capital and experience to do so.
2. Are the so-called advantages of small business really advantages? Wouldn’t every small-
business owner like his or her business to grow into a large firm?
Yes, the benefits inherent in small business often are lost as a business expands. Some small-
business owners are content to stay as a small business. But for most owners, the benefits of
business growth far outweigh the additional burdens.
3. Do average citizens benefit from the activities of the SBA, or is the SBA just another way
to spend our tax money?
The average citizen benefits greatly by having tens of thousands of more competitive
businesses from which to select goods and services. These businesses might not have started or
perhaps could not have continued without the assistance of the SBA.
4. Would you rather own your own business independently or become a franchisee? Why?
Students’ answers will vary but will, no doubt, be based on the advantages and disadvan-
tages of business ownership. The advantages of business ownership are (1) pride in owner -
ship, (2) management flexibility, (3) retention of all profits, and (4) ease of transfer. The
advantages of a franchise are (1) ease of start-up, (2) benefits of an established name,
(3) professional/expert assistance, and (4) managerial guidance.
5.7c Comments on Video Case
From Two Men and a Truck to 220 Franchises and 1,400 Trucks
Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide.
1. Which advantages of small business helped Mary Ellen Sheets establish and grow Two
Men and a Truck?
One advantage that helped Two Men and a Truck grow was the ability to form personal
relationships by having employees follow the “Grandma Rule” of showing respect and caring
for customers. This personal touch attracted new customers, kept existing customers loyal, and
created a unique image for the company. Another advantage that helped Two Men and a Truck
was its independence. Mary Ellen Sheets could schedule moves when her two sons were home
from college, for example. She also made her own decisions about buying a larger truck and
hiring additional employees when demand was growing. And she decided to donate the first
profits to charity, another aspect of independence. Becoming known for community
involvement helped Two Men and a Truck establish itself in the early years.
2. Which disadvantages of small business did Two Men and a Truck have to overcome? If
you had been part of the business at the start, what suggestions would you have offered
for overcoming these issues?
One disadvantage the company had to overcome was the risk of failure. When Mary Ellen
Sheets bought the larger truck and hired new employees, she had no way of knowing how
quickly this financial outlay would lead to higher revenue and profitability—if at all. Demand
for moving services could have evaporated so suddenly that Two Men and a Truck would be
stuck with a large truck and have to lay off workers. A second disadvantage was limited
potential. At first, the business consisted of two high school guys doing moving jobs in an old
pickup truck. Once they graduated and entered college, their mother had to replace them if she
was to keep the business going. Students may offer a variety of suggestions for overcoming
these issues (such as recruiting neighbors and classmates to handle moving jobs when the
original “two guys” were unavailable).
3. Do you think it’s a good idea for Two Men and a Truck to offer franchises outside of
North America? Why or why not? What kinds of questions would international
franchisees be likely to ask the company?
Students who believe Two Men and a Truck should expand outside North America may note
that this will enable the company to take advantage of economic expansion and market
opportunities far from its headquarters, instead of relying solely on North American markets for
growth. Students who take the opposite view may say that it will be difficult for Two Men and
a Truck to enforce its customer service standards if franchisees are located at a great distance
from headquarters—which could hurt the firm’s reputation. International franchisees are likely
to ask questions such as: How much will it cost to get started in this franchise business, and
what do I get for my money? What qualifications make for a successful franchisee in the
moving business? What kind of service and support will Two Men and a Truck provide to
franchisees outside the home country?
5.7d Building Skills for Career Success

1. Social Media Exercise
American Express’s “Open Forum” is a website that is designed for small-business
owners (www.openforum.com). Do a search using a search engine like Google or Bing and
you will also find its presence on Tumblr and Pinterest. Take a look at the Open Forum
website and answer the following questions.
1. What questions can Open Forum answer for business owners?
Open Forum connects business owners and helps them manage and grow their companies.
The site include articles to assist business owners with information on decision making and
provides them with current information on many topics. The “Highlight” section contains
topic areas with current information that will help business owners answer many questions.
Categories include Sales, Money, Productivity, Managing, Marketing, Technology, and
Innovation among others.
2. Develop a list of five issues or topics that you feel illustrates how American Express
does an effective job of presenting information on this website.
Students might include some of the following topics:
 American Express has divided the “Business” section into sub-categories. The OPEN
Small Business, Corporations, and Merchants categories each contain information
relating specifically to those target groups.
 There are videos, articles, podcasts, and blogs that provide multiple avenues of
information.
 Online communities such as Twitter, Facebook, LinkedIn, and Tumblr connect
business owners.
 AmEx is able to market to business owners some of its product line such as travel
services, travel insurance, and credit cards.
 Business owners can manage their AmEx accounts online through this site.
 Apps allow users to link to other sites such as Yola, which enables business owners to
create a professional website, or pagemodo, which enables creation of a custom
business Facebook page.
 Businesses are organized by industry: Manufacturing; Entertainment & Recreation;
Marketing, Advertising & Creative Services; Health Care; and Educational Services
among others.
 There are many resources available, but the site offers “Most Popular,” “Top Story,”
and “What’s New” categories to pare down the available articles and videos.
2. Building Team Skills

A business plan is a carefully constructed guide for starting a business. Students should follow
the outline in Table 5-4 in preparing their business plan.
3. Researching Different Careers
Successful entrepreneurs are unique people. They are highly motivated, self-directed, action-
oriented, highly energetic, willing to take risks, and willing to work long hours. Today,
entrepreneurs are older with more education, more experience, and more managerial skills than
their predecessors. People with many years of experience are opening their own businesses after
losing their jobs of many years and not being able to find employment that meets their needs.
5.8 QUIZZES I AND II

Quiz I
True-False Questions
Select the correct answer.
1. T F A small business is one that is dependent, is operated as a not-for-profit organization,
and is not dominant in its field.
2. T F The primary reason for small-business failure is mismanagement resulting from lack of
business know-how.
3. T F The type of person likely to start a small business is independent, has a desire to
determine his or her own destiny, and is willing to find and accept a challenge.
4. T F The SBA is more likely to help nonminority small businesses.
5. T F Franchising is the actual granting of a franchise.
Multiple-Choice Questions
Circle the letter before the most accurate answer.
6. A government agency that was created to assist, counsel, and protect the interests of small
businesses in the United States is called
a. Small Business Institutes.
b. Small Business Investment Companies.
c. the Small Business Administration.
d. Small Business Development Centers.
e. Small Business Guidance Centers.
7. Businesses seem to cluster in which of the following industries?
a. Service industries
b. Distribution industries
c. Production industries
d. Financial industries
e. All of the above
8. A group of retired businesspeople who volunteer their time to help small-business owners is
known as
a. SCORE.
b. ACE.
c. SBDC.
d. SBI.
e. SBIC.
9. A privately owned company that provides venture capital to small firms is a(n)
a. small-business association.
b. small-business investment company.
c. small-business institute.
d. active corps of executives.
e. small-business development center.
10. The person or firm that purchases a franchise is called a(n)
a. entrepreneur.
b. franchisor.
c. franchisee.
d. enterpriser.
e. capitalist.
Quiz II
True-False Questions
Select the correct answer.
1. T F An advantage to the franchisor is that he or she gains fast and selective distribution of
the product.
2. T F An advantage for the franchisee is the opportunity to start a business with limited capital.
3. T F The majority of small businesses are found in the production industry.
4. T F Because of their small size, small businesses affect the U.S. economy very little.
5. T F Planning is one vital element in the success of a small business.
Multiple-Choice Questions
Circle the letter before the most accurate answer.
6. The individual or firm that grants a franchise is known as the
a. SBA.
b. franchisor.
c. franchisee.
d. entrepreneur.
e. grantor.
7. Small businesses provide
a. technical innovation.
b. employment.
c. competition.
d. for the needs of society.
e. all of the above.
8. One advantage a small business has is

a. no risk of failure.
b. limited management skills of owners.
c. developing personal relationships with customers and employees.
d. sharing profits with employees.
e. limited ability of raising capital.
9. Groups of senior and graduate students in business administration who provide management
counseling are called
a. small-business institutes.
b. small-business development centers.
c. active corps of business students.
d. small-business investment centers.
e. small-business senior centers.
10. The main disadvantage of franchising affects
a. the consumer.
b. the franchisor.
c. the franchisee.
d. both b and c.
e. the grantor.
5.9 ANSWER KEY FOR QUIZZES I AND II

Quiz I
True-False Multiple-Choice
1. F 6. c
2. T 7. e
3. T 8. a
4. F 9. b
5. T 10. c
Quiz II
True-False Multiple-Choice
1. T 6. b
2. T 7. e
3. F 8. c
4. F 9. a
5. T 10. c
5.10 CLASSROOM EXERCISES

5.10a Homework Activities
 Article Report. Have students bring in an article that shows an example of an entrepreneur.
 Researching and Following a Company Throughout the Course (continuing assignment).
Have students research the history of their company and describe how it started. With each
continuing assignment, students should document their sources of information, as they would
with any research project.
 Characteristics of Entrepreneurs. To gain a better understanding of the personality of the
entrepreneur, have each student research and report on a well-known entrepreneur (these can be
found in the Inc. magazine profiles or in Fast Company magazine). After the reports, students
can compare notes on the characteristics the entrepreneurs share. A fun way to do this is to hand
out five post-its to each student and have them write down up to five different characteristics of
that entrepreneur. Have the students arrange their post-its in groups on the wall. See how many
end up in groups such as “persevered in the face of failure,” or “good in high tech,” etc.
 Interviewing a Small-Business Owner. To help students understand the different challenges
facing small-business owners, you may have them interview various small-business owners and
report their findings to the class. Some questions could include the nature of their daily activities,
dealing with constant change, surviving in tough times, and the differences they perceive
between what they do and what employees in larger organizations do.
5.10b Classroom Activities

 Fun Quiz.
Using the “So You Think You Know Entrepreneurs?” questions as a handout or PowerPoint,
have students take this quick (five minutes or less) individual quiz that can be used as a
discussion starter. Answers are provided.
 Let’s Brainstorm! Group Activity.
Arrange students into groups of five or six. Ask one student to be a note taker. Use the handout
provided. The students will have 10 minutes to brainstorm possible service business ideas for
aging baby-boomers. The purpose of the exercise is to encourage them to think of unfulfilled
needs for an important and moneyed target group. Encourage them to be creative and not to be
concerned with feasibility at this stage. See instructor notes for some suggestions to use in your
debriefing or to get the students started.
 Ok—I Have an Idea—Now What? Group Exercise.
Arrange students into groups of four or five. In this exercise, students are asked to provide advice
to a relative with a potentially attractive new product idea. The purpose of the exercise is to help
students actively consider the factors involved in making a start-up business a success. They
should have approximately 15 minutes to develop a plan. Upon completion, each group should
share their recommendation with the class. Instructor notes are provided with some suggestions.
 
 Most Creative Business/Product Combination Contest Group Exercise.

This exercise gives students the opportunity to both be creative and compete in a fun atmosphere.
It is a short exercise (10–15 minutes) that asks students to consider business synergy and cost
reduction. The exercise can also be expanded to a longer homework assignment or presentation.
5.10c Exercise Handouts Follow on Next Pages
So You Think You Know Entrepreneurs?
There are many myths about entrepreneurs—take the true-false quiz below and see
how well you see past the stereotypes!
1. Most people start their own business to make lots of money. T or F
2. You don’t need a lot of money to start a business. T or F
3. It is important to have a great idea. T or F
4. The bigger the risk, the bigger the reward! T or F
5. Successful entrepreneurs are born to have their own business. T or F
6. If you haven’t started a business by the time you are 30, you are too old. T or F
7. You don’t need a business plan for success. T or F
8. It is better to be creative than self-disciplined. T or F
9. It is smarter to focus on the big picture instead of business details. T or F
10. Most entrepreneurs are ethical people. T or F
So You Think You Know Entrepreneurs?
1. Most people start their own business to make lots of money.

False—The number one reason is a desire for independence.
2. You don’t need a lot of money to start a business.

True—Most entrepreneurs start with $10,000 or less.
3. It is important to have a great idea.
False—A great idea helps, but companies like Sony and Walt Disney started
without a great idea.
4. The bigger the risk, the bigger the reward!

False—Risk, while always present, must be managed. Successful entrepreneurs
do it well.
5. Successful entrepreneurs are born to have their own business.
False—Sometimes inspiration doesn’t strike until you have worked for someone
else for a while.
6. If you haven’t started a business by the time you are 30, you are too old.
False—You are never too old to start a business. Colonel Harland Sanders,
born September 9, 1890, actively began franchising his chicken business at the
age of 65.
7. You don’t need a business plan for success.
False—It is better to have one, but companies like Pizza Hut and Crate and Barrel
started without one.
8. It is better to be creative than self-disciplined.

False—Hard work and discipline wins over creativity!
9. It is smarter to focus on the big picture instead of business details.
False—Details matter! The successful entrepreneur has a good grasp of all areas
of the business.
10. Most entrepreneurs are ethical people.

True—Dishonesty is a recipe for failure. People will not trust or help someone
without a reputation for integrity.
Let’s Brainstorm!
You and your team have been given the task of developing a new service
business idea for a potential client. In the next five minutes, please
brainstorm and list as many new service business ideas as you can. There
are
only a few rules. First, all ideas are acceptable at this stage. Nothing should
be ruled out as silly, impractical, or even antisocial. Improvements on
existing services should also be listed. Do not consider cost or practicality.
This service must appeal to aging baby-boomers 50 years old or older, who
work in professional or high-level corporate careers. They work an average
60- to 80-hour week and make a minimum $100,000 per year. They like to
look good, be social, and stay healthy. Time is a big issue for them.
HINT: Think of problems these folks may have that could be solved by a
service. You have 10 minutes.
Let’s Brainstorm! Instructor Notes
One group of services might relate to health issues. For example:

 At-home teeth cleaning and whitening
 A service that fills out insurance forms and handles claims
 A message service that calls when any medical provider is running late
Another group might be related to domestic errands. For example:

 A service where someone comes in once a week to water plants, replace light bulbs, check for
adjustments to be made to appliances or any other fixes
 At-home oil change for the car
A third group might be purchasing. Perhaps the following:

 Menu planner and grocery shopper
 Automatic replacement/delivery of items such as printer cartridges, paper, and other home office
items
 Gift shopper, wrapper, and shipper
Other groupings could be social events, laundry, organization, travel, computer technology, etc.
OK—I Have an Idea—Now What?
Your Aunt Carole has come to you and your classmates for help with her
new product. After years of frustration, aggravation, bites, and scratches
from her beloved but bad-tempered long-haired cats when attempting to
groom them, Aunt Carole has developed a new product—the “Happy Pet”
mat remover. The “Happy Pet” electronically stimulates individual hairs to
separate with no pulling or tugging on sensitive skin. Even the worst mat
comes out easily. It is no more than two ounces, small enough to fit the
owner’s palm, and made of soft rubber. It would come with an automatic
recharger similar to that of a cell phone.
You have done some research and found that according to the U.S. Pet
Ownership & Demographics Sourcebook (2012), Americans own
approximately 75 million cats. Even if only 20 percent of them have long
hair, that is a substantial market for a small business.
In your groups, decide what advice you would give Aunt Carole to help
her succeed. You might start by considering the market viability of the
idea. How do you find out if people will actually pay for something like
this? Who is most likely to buy it? You have 15 minutes.
OK—I Have an Idea—Now What? Instructor Notes
Some of the suggestions students will come up with might include:

 Seek help and guidance from the SBA, SCORE volunteers, Small Business Institutes and
Development Centers, as well as SBA publications.
 Investigate grooming products available in pet stores, catalogs, and online. If similar products
exist, how are they advertised and priced?
 Talk to friends and acquaintances who own cats and have similar problems. Find out how they
feel about “Happy Pet.”
 Talk to several veterinarians and get their point of view.
 Find out if Aunt Carole actually wants to have a small business and is willing to put out the
effort to get it started.
 Does Aunt Carole have enough money for the initial investment?
 Who will help Aunt Carole write the business plan so that she can get loans if she needs them?
 Determine what skills Aunt Carole has and what skills she will need to start and run a business.
Most Creative Business/Product Combination Contest
In a weak economy, people are generally interested in ways to save both

time and money. Creative combinations of services and products can be
very popular in such times. The bank that has a coffee shop on its premises,
the laundromat and pub combination, or the drug store with a resident nurse
practitioner—all of these offer synergy and potential cost savings to both
the business and the customer.
Your instructor has assigned you to a team. Your task in the next 10 to 15
minutes is to discuss possible combinations of products or businesses that
might be attractive to hard-working people who are watching their budgets.
Choose the most attractive alternative to present to your classmates. You
will then be asked to vote for the best new business idea. You will have a
limited time to present so be sure to indicate who the most likely customers
for your new business will be and how they will benefit from the business.
Also, be prepared to explain why these combinations work and if you see
potential cost savings for either the business or the customer.
Most Creative Business/Product Combination Contest Instructor Notes
This is a short, fun exercise that encourages creativity. Small groups of three would be ideal for this
project. You may choose to expand this exercise to request more detail from the students. You could
direct students to the Kaboodle shopping website (http://www.kaboodle.com/gadgets/omg) and show
them some of the very creative product ideas shown there.
This exercise could also be adapted for a presentation or homework, depending on time and the size
of the class.
RUNNING A BUSINESS—PART 2
Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide.
Graeter’s: A Fourth-Generation Family Business

1. Graeter’s current management team bought the business from their parents, who did not
have a formal succession plan in place to indicate who would do what. Do you think the
current team should have such a plan specifying who is to step into the business, when,
and with what responsibilities? Why or why not?
The current owners should definitely prepare a succession plan, not only to ensure the company
continues to operate smoothly should one or more of them choose to retire, but also to prevent
destructive conflicts and disagreements among family members about how the company should
continue to be run at that time. While the three appear to have stepped smoothly and willingly
into roles for which they have been trained since childhood, there is no guarantee that any of
their own children will be ready or willing to assume the reins, or when. Preparing a succession
plan provides the opportunity for all members of the family to discuss what they see as the
company’s future and what role they hope to play in it, as well as what skills and education they
might bring to that role, how they will share decision making, and so on. It will be particularly
helpful if the company’s future management team is cross-generational.
2. Graeter’s hired management consultants to help improve its training procedures and
expand distribution. “I think my cousins and I all have come to realize we can’t do it
alone,” says the CEO. Why do you think the management team made this decision? Does
the involvement of outside consultants move Graeter’s further from its roots as a family
business?
Simply hiring consultants does not reduce the Graeter family’s control over or ownership of the
firm. Franchising did more to reduce the family’s control than bringing consultants in.
Management’s decision does suggest that the current owners recognize the opportunities they
need to take advantage of in order for the business to remain competitive and grow. They also
correctly assessed the challenges they would face in expanding and the specific training and
skills they needed to add to their management team to make it happen.
3. Do you agree with Graeter’s decision to stop franchising? Explain your answer.
Given the owners’ focus on maintaining the traditional, almost artisanal, quality of all Graeter’s
products, it was probably a wise step to close the franchise operations, even though they had
operated successfully. The company now owns not only all of its retail outlets but all of its
manufacturing operations as well, substantially lowering the risk that quality might not remain
high and uniform. This protects the brand’s reputation and also ensures that Graeter’s can
expand without regard to potentially competing with any franchisees.
BUILDING A BUSINESS PLAN—PART 2

Before students start the company and industry component of the business plan, remind them to
correct any weaknesses or problem areas in Part 1.
The Company and Industry Component

In this section, students should provide information about the background of the company; choice of
legal business form; information on the products or services to be offered; and a description of
potential customers, current competitors, and the business’s future.
Refer students to Chapter 4, “Choosing a Form of Business Ownership,” and Chapter 5, “Small
Business, Entrepreneurship, and Franchises.” Both chapters should help students answer many
questions in this section of the business plan. Specifically, refer students to content regarding:
 Partnerships, types of partners, the partnership agreement, and advantages and disadvantages of
partnerships.
 The corporate form of ownership and its advantages and disadvantages.
 Other types of business ownership.
 A profile of the small-business sector, industries that attract small businesses, the people in small
business, and why small businesses fail.
 The importance of small businesses in our economy.
 Advantages and disadvantages of small business.
Once again, refer students to the text to review the guidelines for developing a business plan. If
students’ new business venture is a franchise, refer them to Chapter 5 for information about
franchising and its advantages and disadvantages.
Review of Business Plan Activities

Make sure that students resolve any issues in this component of their business plan before beginning
Part 3. Again, make sure that their answers in each part are consistent with the entire business plan.
They should also write a brief statement that summarizes all the information for this part of the
business plan.

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Small Business, Entrepreneurship,

INSTRUCTOR MANUAL RESOURCES

5.10 Classroom Exercises ............................................................................................................. 177

5.1 A WORD FROM THE AUTHORS

5.2 TRANSITION GUIDE

New in Chapter 5: Small Business, Entrepreneurship, and Franchises

5.3 QUICK REFERENCE GUIDE

5.4 LEARNING OBJECTIVES

5.5 BRIEF CHAPTER OUTLINE

II. The People in Small Businesses: The Entrepreneurs

III. The Importance of Small Businesses in Our Economy

IV. The Pros and Cons of Smallness

B. Disadvantages of Small Business

V. The Small Business Administration

VII. The Growth of Franchising

VIII. Global Perspectives in Small Business

5.6 COMPREHENSIVE LECTURE OUTLINE

III. THE IMPORTANCE OF SMALL BUSINESSES IN OUR ECONOMY

B. Providing Employment. Small businesses represent 99.7 percent of all employers,

V. THE SMALL BUSINESS ADMINISTRATION. The Small Business Administration

1. Small-Business Institutes. A small-business institute (SBI) is a group of senior

VI. FRANCHISING. A franchise is a license to operate an individually owned business as

3. The franchisor supplies brand names, techniques, or other services, instead of a

VIII. Global Perspectives in Small Business

For Franchising Against Franchising

5.7 TEXTBOOK ANSWER KEYS

5.7a Concept Checks

Concept Check (p. 144)

Concept Check (p. 149)

5.7b Discussion Questions

5.7c Comments on Video Case

5.7d Building Skills for Career Success

2. Building Team Skills

5.8 QUIZZES I AND II

8. One advantage a small business has is

5.9 ANSWER KEY FOR QUIZZES I AND II

5.10 CLASSROOM EXERCISES

5.10b Classroom Activities

 Most Creative Business/Product Combination Contest Group Exercise.

5.10c Exercise Handouts Follow on Next Pages

So You Think You Know Entrepreneurs?

1. Most people start their own business to make lots of money. T or F

2. You don’t need a lot of money to start a business. T or F

3. It is important to have a great idea. T or F

4. The bigger the risk, the bigger the reward! T or F

5. Successful entrepreneurs are born to have their own business. T or F

7. You don’t need a business plan for success. T or F

8. It is better to be creative than self-disciplined. T or F

9. It is smarter to focus on the big picture instead of business details. T or F

10. Most entrepreneurs are ethical people. T or F

So You Think You Know Entrepreneurs?

1. Most people start their own business to make lots of money.

2. You don’t need a lot of money to start a business.

4. The bigger the risk, the bigger the reward!

8. It is better to be creative than self-disciplined.

10. Most entrepreneurs are ethical people.

Let’s Brainstorm! Instructor Notes

One group of services might relate to health issues. For example:

Another group might be related to domestic errands. For example:

A third group might be purchasing. Perhaps the following:

OK—I Have an Idea—Now What?