BA109 Chapter 4 - Practice Exam

Identifying a specific target market is not an essential part of creating a solid business plan for a small company.

False

Because the entrepreneur is the driving force behind a business idea, he or she should also be the driving force behind the business plan.

True

Before presenting a business plan to potential lenders and investors, an entrepreneur must be well informed and well prepared.

True

Essential pieces of information for potential lenders and investors include the assumptions the entrepreneur uses to derive the financial forecasts and projections in the business plan.

True

Generally, an industry is more attractive when quality substitute products are not readily available, the prices of substitute products are higher, and buyers' costs of switching products is high.

True

In a business plan, both company goals and objectives should relate to the company's mission.

True

In the business and industry profile section of the business plan, the entrepreneur should provide information on the size of the market, growth trends, and the relative economic and competitive strength of the industry's major players.

True

T/F Capital requirements, estimate earnings, and return on investment are three aspects of the financial feasibility analysis.

True

T/F The "two-thirds rule" says that only two-thirds of the entrepreneurs with a sound new business venture will get financing, that they will get only two-thirds of what they need, and that it will take them two-thirds longer to get it than they anticipated.

True

The business and industry profile section of the business plan should cover existing and anticipated profitability of firms in the targeted market segment and any significant entry or exit of firms.

True

The business strategy section of the business plan addresses the question of how the entrepreneur plans to achieve the mission, goals, and objectives he has established for his business venture.

True

The higher a small business scores on the 5 C's of credit, the greater its chances will be of receiving a loan.

True

The loan proposal portion of the business plan should include a realistic timetable for repayment or for investors to exit.

True

The primary purpose of the five forces matrix is to:

assign values to each of the five elements.

Proving that a profitable market exists involves:

proving that customers in the marketplace need or want the good or service and are willing to pay for it and documenting claims about market size and growth rates with as much factual information as possible only

Products or services that may be sought as alternative solutions-such as purchasing tax planning software rather than paying a CPA to assist with preparing your taxes-are referred to as:

substitute products.

After presenting her business plan to a group of potential lenders and investors, an entrepreneur should:

take a proactive approach by following up with every potential lender and investor to whom she makes a presentation.

The criteria lenders and investors use to evaluate the credit worthiness of entrepreneurs that are seeking financing-including capital, capacity, collateral, character, and conditions-are referred to as:

the five C's of credit.

The force from the five forces model that considers economies of scale, initial capital requirements, cost advantages relevant to company size, and lack of brand loyalty is the:

threat of new entrants.

The second essential purpose for creating a business plan is:

to attract lenders and investors.

________ is an entrepreneur's best insurance against launching a business destined to fail or mismanaging a potentially successful company.

Creating a solid business plan

An entrepreneur should prepare a single set of "most likely" financial forecasts for one year into the future as part of the business plan.

False

Because gathering information on competitors' products or services, strategies, and market share is so difficult, most lenders and investors see the competitor analysis section of the business plan as optional.

False

Potential lenders and investors expect entrepreneurs to exaggerate the truth in their business plans, so telling the truth in the plan is really not important.

False

Primary research is information that has already been complied and is available for use, often at very reasonable costs or sometimes at no cost to the entrepreneur.

False

T/F After presenting the business plan to a group of potential lenders and investors, an entrepreneur should sit back and wait to hear from those who might be interested in the venture.

False

T/F The "C" of the 5 C's of Credit that is synonymous with cash flow is capital.

False

The competitive test that a business plan must pass in order to attract financing for lenders and investors involves proving to them that the venture offers a high probability of repayment or an attractive rate of return.

False

The wise entrepreneur will indicate that there is no real competition for his new business venture, thereby increasing the likelihood that he will gain more interested investors.

False

________ are broad, long-range statements of what a company plans to achieve in the future that guide its overall direction and addresses the question, "Why am I in business?"

Goals

When creating financial forecasts in a business plan for a proposed venture, an entrepreneur should:

be sure that all forecasts are realistic.

Issues such as market size, growth trends, ease of market entry and exit, the presence of cyclical or seasonal sales trends, and the competitive dynamics of an industry appear in the ________ section of the business plan.

business and industry profile

The ________ acquaints lenders and investors with the nature of the business and the general goals and objectives of the company.

business and industry profile

The section that describes "how to get there" and describes a competitive edge that sets the business apart is referred to as the:

business strategy.

The organization chart is described in which section of the business plan?

The plan of operation

The ________ highlights significant financial and operational events in the company's life and should concentrate on the company's accomplishments.

company history

An analysis that determines the degree to which a product or service idea appeals to potential customers and identifies the resources necessary to produce the product or provide the service is referred to as:

product or service feasibility analysis.

The ________ test that a business plan must pass in order to attract financing from lenders and investors involves proving that a market for the company's product or service actually does exist and that the company actually can build it for the cost estimates included in the plan.

reality

The strongest of the five forces in most industries is:

rivalry among companies competing in the industry.

The most common reason cited by banks for rejecting small business loans is:

undercapitalization and too much debt.

The most common reasons banks give for rejecting small business loan applications are undercapitalization and too much debt.

True

The real value in preparing a business plan is not so much in the plan itself as it is in the process the entrepreneur goes through to create the plan.

True

The reality test that a business plan must pass in order to attract financing from lenders and investors involves proving that a market for the company's product or service actually does exist, and that the company actually can build it for the cost estimates in the plan

True

The reality test that a business plan must pass in order to attract financing from lenders and investors involves proving that a market for the company's product or service actually does exist, and that the company actually can build it for the cost estimates in the plan.

True

To be meaningful, an objective must include a time frame for achievement.

True

Ideally, a business plan should range from ________ pages in length.

20 to 40

The loan proposal section of a business plan should include all but which of the following?

A general request for funds without stating a specific dollar amount

A business plan is a written summary of:

All of these

A business plan:

All of these

A solid business plan:

All of these

Before putting their money into a business idea, potential lenders and investors:

All of these

The company history section of the business plan typically includes:

All of these

Which of the following is true regarding the process of building a business plan?

All of these

T/F An entrepreneur should prepare a single set of "most likely" financial forecasts for one year into the future as part of the business plan.

False

T/F The competitive test that a business plan must pass in order to attract financing for lenders and investors involves proving to them that the venture offers a high probability of repayment or an attractive rate of return.

False

T/F The executive summary serves as the thesis statement for the entire business plan.

False

The "C" of the 5 C's of Credit that is synonymous with cash flow is capital.

False

The most common reason banks give for rejecting small business loan applications is the entrepreneur's poor credit history.

False

Which of the following is true about the preparation of a business plan?

The elements of the plan may be standard, but the content should reflect the unique aspects of the business and the excitement of the entrepreneur.

T/F The loan proposal portion of the business plan should include a realistic timetable for repayment or for investors to exit.

True

A benefit is a descriptive fact about a product or service; a feature is what the customer gains from that product or service benefit.

False

Defining the company's target market, its characteristics, and its potential is part of which element of the business plan?

Marketing strategy

________ are short-term, specific targets which are attainable, measurable, and controllable.

Objectives

A business plan is a written summary of an entrepreneur's proposed venture, its operational and financial details, its marketing opportunities and strategy, and its managers' skills and abilities.

True

One form of primary research is:

a focus group.

Switching costs, the number of buyers, and if the items represent a relatively small portion of the cost of finished products are key considerations regarding the:

bargaining power of buyers.

The financial feasibility analysis takes these aspects into consideration:

capital requirements, estimated earnings, and return on investment.

A synonym for capacity is:

cash flow.

The focus of the competitor analysis section of the business plan is on:

demonstrating your company's advantage over competitors.

The ________ is also known as the "elevator pitch" and is written last, but is included as the first part of the business plan; it should summarize all the relevant points in about two pages.

executive summary

A ________ is a descriptive fact about a product or service; a ________ is what the customer gains from that characteristic.

feature; benefit

When formulating a marketing strategy, small companies usually are most successful when they:

focus on a particular market niche where they can excel at meeting customers' needs and wants.

The primary purpose of a business plan is to:

guide a company by charting its future course and devising a strategy for success.

An explanation of how the product will be distributed is contained within the ________ section of the business plan.

marketing strategy

The ________ serves as the "thesis statement" for the entire business plan and is the broadest expression of a company's purpose and defines the direction in which it will move.

mission statement

Porter's five forces model assesses industry attractiveness by surveying these five factors:

potential entrants, suppliers, buyers, substitutes, and rivalry among existing firms.

Conducting ________ research involves collecting data firsthand and analyzing it while ________ research involves gathering data that has already been complied and is available.

primary; secondary

Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the entrepreneur:

probably lacks the discipline to run a business.

When describing their products and services in their business plans, entrepreneurs must remember that customers buy the benefits from products and services, not the features.

True

A business plan that fails to assess a company's competitors realistically makes the entrepreneur appear to be poorly prepared.

True

A feasibility analysis is the process of determining whether an entrepreneur's idea is a viable foundation for creating a successful business.

True

A lender's primary concern in granting a loan is reassurance that the applicant will repay it, whereas an investor's primary concern is earning a satisfactory rate of return.

True

A product or service feasibility analysis determines the degree to which a product or service idea appeals to potential customers and identifies the necessary resources.

True

A table of contents that allows lenders to navigate a business plan easily is an important element of any business plan.

True

A well-prepared business plan forces an entrepreneur to assess the venture's chances of success more objectively.

True

An entrepreneur may find that the business plan indicates that the business concept is not viable. This is another potential benefit of writing a business plan; this revelation occurred before the owner committed significant resources -time and money - to the venture.

True

Objectives are short-term, specific targets that the small company plans to accomplish.

True

T/F Because the entrepreneur is the driving force behind a business idea, he or she should also be the driving force behind the business plan.

True

T/F Before presenting a business plan to potential lenders and investors, an entrepreneur must be well informed and well prepared.

True

T/F In a business plan, both company goals and objectives should relate to the company's mission.

True

T/F The executive summary of a business plan should summarize all of the relevant points of the proposed venture and should be concise-no more than two pages.

True

T/F The higher a small business scores on the 5 C's of credit, the greater its chances will be of receiving a loan.

True

T/F The most common reasons banks give for rejecting small business loan applications are undercapitalization and too much debt.

True

T/F The plan of operation section of the business plan should address how the business plans to retain key managers and employees.

True

T/F To get external financing, an entrepreneur's business plan must pass the reality test, the competitive test, and the value test with potential lenders and investors.

True

The five forces model would assess economies of scale factors in the "threat of new entrants" portion of the model.

True

To get external financing, an entrepreneur's business plan must pass the reality test, the competitive test, and the value test with potential lenders and investors.

True

To make a business plan more attractive, an entrepreneur should include a potential exit strategy as a way to "cash out" for investors.

True