Typically Managed by Small Groups such as Husband-and-Wife Teams GMAT Reading Comprehension

Reading Passage Question

Typically managed by small groups such as husband-and-wife teams and characterized by insignificant growth opportunities, lifestyle businesses are far less attractive to outside investors than growth businesses are. Lifestyle businesses mostly expand their capital through debt financing as equity financing is much more difficult for them to attract. Even when equity financing is an option, it is mostly because of the investments made by family and friends in the business.

However, outside investors’ lack of relative interest does not indicate that such businesses are not profitable. All it means is that these companies do not necessarily have aspirations of rapid growth in revenue and as such their goals are indicative of their prime aim of sustaining a particular level of income that provides a basis to the founders of such companies to enjoy a particular lifestyle - hence the name, lifestyle business. In fact, in that sense, a lifestyle business doesn’t have to be small at all, either in revenue or employees.

Although lifestyle businesses do share some features with other types of businesses, their success is not dependent on the scalability of their business models, which is an important factor for many investor-funded businesses including start-up companies typically founded by close family and friends. Also, the focus of the founders in investor-funded businesses is on building the equity value of the company so that they can harvest their investment and labor through the sale of the company in the short term. Whereas, even when the equity value of a lifestyle company is modest, it can continue to provide very high salaries to the founders of the company who can choose to keep it running as long as they want to.

‘Typically managed by small groups such as husband-and-wife teams’ is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Questions and Solutions

1. The author implies that which of the following statements about lifestyle businesses is true?

1. Mostly only these businesses are managed by small groups such as life partners.
2. The revenues of such businesses do not necessarily represent the aspirations of the founders of such businesses.
3. Debt financing and equity financing by insiders are the only options available to such businesses looking for capital.
4. In the short run, factors guiding the efforts of the founders of investor-funded companies could differ from those of lifestyle businesses.
5. It is very rare for the founders of such businesses to sell them in the short term.

2. The author is primarily concerned with

1. describing how lifestyle businesses provide less hectic lifestyles for their founders.
2. explaining how difficult it is for lifestyle businesses to obtain capital from outside investors
3. suggesting how lifestyle businesses are concerned with matters not entirely dissimilar from other business types
4. advocating how lifestyle businesses are equally profitable as other businesses despite the limited interest by outside investors
5. explaining various features of lifestyle businesses while differentiating them from other business types

3. Which of the following is the function of the final paragraph in the passage?

1. To contrast lifestyle businesses from other business types.
2. To describe the similarities and dissimilarities between investor-funded businesses and lifestyle businesses.
3. To indicate how most of the factors determining the success of a lifestyle business are internal and not external.
4. To discuss a feature of lifestyle businesses in detail.
5. To suggest how the efforts of lifestyle businesses differ from those of investor-funded businesses in the short run.

4. Which of the following would the author most likely agree with?

1. The potential for fast growth in revenues is not synonymous with overall profitability of a business.
2. Although lifestyle businesses are fundamentally different from investor funded businesses, most of their features are common with those of other types of businesses.
3. Lifestyle businesses are generally limited in their scale because of their founders' modest aspirations.
4. The fields entered by lifestyle businesses are generally not found profitable by other types of businesses such as those funded by investors.
5. For companies typically founded by friends and family, equity value is not a prime concern.

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