Chapter 6: The basics of business plans

Time and money are factors that affect the extent of business plan preparation. a. True b. False

a. True

Jill is writing a business plan for a small home based operation. If well written, the business plan will assist her in determining if a. the business aligns with personal goals. b. an investor would be a perfect fit for the proposed company. c. suppliers can be found for the operation. d. outsiders can be made into insiders.

a. the business aligns with personal goals

The short plan would have the least amount of information about a. pricing. b. supporting documentation. c. competition. d. distribution channels.

b. supporting documentation

An overview of the significant points of a business plan appears in the a. financial plan. b. general company description. c. executive summary. d. operating plan.

c. executive summary.

The executive summary part of a business plan should be written a. first. b. last. c. before the finance plan. d. before the legal plan.

b. last.

Describing a product or service should be in lay terms even if the product is technical in nature. a. True b. False

a. True

Investors are more product-oriented than market-oriented. a. True b. False

a. True

With the right assistance from professional sources (e.g., attorneys, accounting firms, incubator services), the entrepreneur can avoid direct involvement in developing the business plan. a. True b. False

a. True

The ___________ type of executive summary is better suited to a business that intends to market a new product or enter a new market. a. informative b. synopsis c. narrative d. blended

b. synopsis

The primary outside users of business plans are a. employees. b. investors and lenders. c. customers. d. government agencies.

b. investors and lenders.

Plans that appeal effectively to investors are a. long and thorough. b. market-oriented. c. product-oriented. d. ten or fewer pages.

b. market-oriented.

A business model a. is only important for startups with a large amount of uncertainty. b. is intended to provide evidence on whether a concept is viable, not if it can be profitable. c. is made up of a revenue model, a cost structure, and key resource requirements. d. forces the entrepreneur to be more disciplined about financial projections.

c. is made up of a revenue model, a cost structure, and key resource requirements.

A business plan should generally project financial and operational aspects of the proposed business for the first a. six months. b. one year. c. three to five years. d. seven years.

c. three to five years.

A potential investor's single goal is to a. make as much money as possible. b. minimize taxes and minimize losses. c. avoid risk at all costs. d. maximize returns while minimizing personal risk.

d. maximize returns while minimizing personal risk.

The ______________ of a business plan identifies each of the succeeding sections and their page numbers. a. executive summary b. company description c. cover page d. table of contents

d. table of contents

A business plan should always be written before deciding to go forward with a startup business idea. a. True b. False

b. False

A business plan should represent the entrepreneur's vision and goals for the proposed company. a. True b. False

b. False

Though all financial statements are important, the cash flow statement deserves special attention. a. True b. False

a. True

In a business plan, the facilities and location of the proposed venture are described in the a. executive summary. b. management team. c. operations and development plan. d. product and service plan.

c. operations and development plan

A business model's key resource requirements​ include only hard assets, such as equipment and buildings, not personnel and contacts. a. True b. False

b. False

In a business plan, the key statement in the financial plan is the a. break-even analysis. b. estimate of returns and allowances. c. salary expense statement. d. cash flow statement.

d. cash flow statement.

A business plan is best described as a a. crystal ball picture. b. money plan. c. contingency plan. d. game plan.

d. game plan.

A business plan is a written document that sets out the basic idea underlying a business and its related startup considerations. a. True b. False

a. True

A loss leader is a revenue stream where products are sold at a loss to hopefully create sales in a more profitable revenue stream. a. True b. False

a. True

Even if the business plan reveals sensitive information (e.g., details of an advanced technology or the specifics of a marketing plan), prospective investors can be trusted with that knowledge. a. True b. False

a. True

. Investors who review business plans typically a. cannot read through all they receive. b. read about one-half of a plan. c. read plans thoroughly. d. read only the marketing and finance sections

a. cannot read through all they receive.

The most beneficial plan when facing significant change in the external environment is a a. comprehensive plan. b. narrative plan. c. subjective plan. d. short plan.

a. comprehensive plan.

Prentiss is writing about the potential lack of customer acceptance of his product and possible reactions from competitors. Prentiss is writing the ____________ of the business plan. a. critical risks section b. executive summary c. marketing plan d. exit strategy

a. critical risks section

It is most important that the marketing plan a. describe how the firm will reach and service customers. b. show the degree of patent or copyright protection. c. summarize the location of potential customers. d. identify distribution channels.

a. describe how the firm will reach and service customers.

The company description section of a business plan should include the company's __________ if the business is already in existence. a. history b. customer list c. sales revenues d. credit score

a. history

In considering the content of a business plan, an entrepreneur should think first and foremost about a. how to present factors related to the opportunity. b. formulating effective strategies and financial projections. c. who will be reviewing the plan. d. how to protect the confidentially of the plan.

a. how to present factors related to the opportunity.

Two resources often in short supply for entrepreneurs are: a. time and money. b. raw materials and labor. c. plant and equipment. d. financial backing and creative genius.

a. time and money.

A business plan is used to provide a statement of goals and strategies for use by company outsiders, and aid in the development of relationships with insiders. a. True b. False

b. False

The sources and uses table is a part of the ___________ of the business plan a. critical risks section b. offering section c. exit strategy d. financial plan

b. offering section

The industry, target customer, and competitor analysis section should: a. begin to describe the company. b. present the opportunity and demonstrate that a market segment is understood. c. introduce the product or service the company will offer. d. identify the company's objectives for sales and growth.

b. present the opportunity and demonstrate that a market segment is understood.

When describing the product in the business plan, the entrepreneur should a. use technical terms. b. state that product will sell itself. c. use layman terms. d. assume that others will like the product.

c. use layman terms.

Quentin, a venture capitalist, is scanning Mildred's business plan to see if and when he can recoup his investment and make a profit. Quentin is looking for: a. a financial plan. b. a marketing plan. c. an investment plan. d. an exit strategy.

d. an exit strategy.

Business plans should be prepared so that they are attractive in appearance and well organized. a. True b. False

b. False

A business model explains how a business will generate profit and cash flow from its revenue streams considering its cost structure and investment size. a. True b. False

a. True

Martin is creating the part of his business plan that includes the name, address, website, and logo of his company. Martin is working on: a. the cover page. b. the table of contents. c. the executive summary. d. the company description.

a. the cover page.

Which group would be the most interested in a business plan for a new venture? a. Customers b. Lenders c. Supervisors d. The Internal Revenue Service

b. Lenders

Jamie has decided to start a franchise. Typically, the business type would require a ______ revenue model. a. volume b. subscription c. advertising d. licensing

d. licensing

An entrepreneur should think of ways to ____________ the resources necessary for startup. a. outsource b. insure c. maximize d. minimize

d. minimize

Orlando has just finished the section describing his quality control methods and the need for specific equipment. Orlando has written the __________. a. management team plan b. marketing plan c. company description d. operations and development plan

d. operations and development plan

A written business plan helps to ensure systematic, complete coverage of the important factors to be considered in starting a new business. a. True b. False

a. True

The product/service plan section should include a. a description of the competition's products. b. a description of the company's own product or service. c. a listing of the weaknesses of the competition's product or service. d. a statement of how the company intends to capture market share.

b. a description of the company's own product or service.

Business plan software packages a. focus mostly on preparing slides to present the business concept to prospective investors. b. spawn creativity and flexibility on the part of the entrepreneur. c. help an entrepreneur think through the important issues in starting a new company. d. offer a simple formula that leads startups to success.

c. help an entrepreneur think through the important issues in starting a new company.

The narrative form of an executive summary a. is more straightforward than the synopsis form. b. allows the author to include hyperbole that builds enthusiasm. c. is a better format for ventures that have one dominant advantage. d. gives each topic relatively equal treatment.

c. is a better format for ventures that have one dominant advantage.

A business plan a. is best for telling insiders about the company. b. is more important than the final outcome. c. is not the business. d. will ensure success.

c. is not the business.

What should a feasibility analysis show before the entrepreneur moves to the business plan step? a. strong market potential b. an attractive industry c. the right team to execute the plan d. All of the above should be should be evident.

d. All of the above should be should be evident.

Because prospective investors receive so many business plans, they cannot take time to review each in any detailed fashion. a. True b. False

a. True

One of the primary functions of a business plan is to serve as a selling document to convince key individuals that the venture has real potential. a. True b. False

a. True

Items such as marketing research studies and the resumes of key executives are placed in the __________ of the business plan a. appendix b. executive summary c. table of contents d. management team section

a. appendix

In a business plan, the discussion of the management team should detail a. the proposed venture's organizational structure. b. profiles of employee needs during the first three years of operation. c. the projected growth of the proposed venture. d. the intended distribution of ownership in the firm.

a. the proposed venture's organizational structure.

Jim is developing a business plan and has limited funds. Which person would be the best fit to offer assistance to Jim? a. a lawyer specializing in business plans b. a SCORE representative c. a consultant in the industry Jim is trying to enter d. an accountant

b. a SCORE representative

Information about the experience of key executives should be placed in the _______ of the business plan. a. executive summary b. management team section c. operations and development plan d. critical risks section

b. management team section

John is a prospective entrepreneur who has just presented his business plan to a venture capitalist, enthusiastically pointing out the unique features of a new invention he is promoting. The most likely question in the venture capitalist's mind is: a. How strong is the patent protection? b. How costly will it be to produce the product? c. What is the demand for the product? d. What management skills does this venture have?

c. What is the demand for the product?

The volume revenue model would require customers to pay a. a fraction of the true value of the product. b. a fixed amount at regular intervals before receiving the product. c. a fixed price per unit for a product. d. a one time fee to use a product.

c. a fixed price per unit for a product.

The cost structure of a business model a. defines the types of income. b. determines how much money is needed for positive cash flow. c. drives the company's cost and expenses. d. is the most critical component for long term success.

c. drives the company's cost and expenses.

Julie has decided to hire a consultant to review her business plan. Which suggestion is the most critical? a. Get referrals for consultants who specialize in comprehensive business plans. b. Check references with the Better Business Bureau. c. Find a consultant who is not knowledgeable in the selected industry but is in general business so as to have a fresh perspective. d. Have a legal contract that specifies exactly what will be done for what price.

d. Have a legal contract that specifies exactly what will be done for what price.

A good business plan leads to a successful company when the entrepreneur and management team a. identify all unexpected events. b. make decisions realizing that change may hurt the new company. c. understand the plan is static. d. effectively execute the plan.

d. effectively execute the plan.

Writing an effective plan is more important for internal purposes than for persons outside of the firm. a. True b. False

b. False

The ___________ type of executive summary is better suited to a business that intends to market a new product or enter a new market. a. informative b. synopsis c. narrative d. blended

c. narrative

When determining a cost structure for a business model, equipment lease payments would be an example of a _______ cost. a. fixed b. variable c. semi-variable d. static

a. fixed

Ideally, investors like a business plan that shows evidence of a. a management staff that will minimize overhead. b. a well-balanced managerial team. c. an entrepreneur who has studied management. d. an entrepreneur who will spend more time managing than selling.

b. a well-balanced managerial team.

In a business plan, the legal form of organization would be discussed in the a. financial plan. b. company description. c. executive summary. d. marketing plan.

b. company description.

Because Tom is planning a new business with a limited timeframe to capitalize on an opportunity, the best solution would be a ____ business plan. a. comprehensive b. narrative c. subjective d. short

d. short

Deviating significantly from the standard business plan format is a mistake because: a. the business plan is not the right place to express one's creativity. b. investors prefer to see a format that is familiar to them. c. investors may lose confidence in the entrepreneur's ability to follow best practices. d. investors don't appreciate opportunities that are too far "outside the box".

b. investors prefer to see a format that is familiar to them.

An extensive business plan that is not followed is more valuable than no business plan at all. a. True b. False

b. False

Incubator organizations can provide advice on structuring a new business. a. True b. False

b. False

Pro forma financial statements reflect the past financial performance of a firm. a. True b. False

b. False

Business planning a. is an ongoing process. b. is an exacting science. c. equals business success. d. will prevent unexpected events.

a. is an ongoing process.

The executive summary of a business plan presents a firm's history and its form of organization. a. True b. False

b. False

The document that assists an entrepreneur and the management team in focusing on important issues and activities is a. the organization chart. b. the budget. c. the sales analysis. d. the business plan.

d. the business plan.

Which question is key for forecasting revenues? a. Who are the most likely customers? b. What events will cause the customer to need the product? c. How will the product compare to the competition? d. All of the answers to the above questions are important to forecast revenues.

d. All of the answers to the above questions are important to forecast revenues.

When dealing with weaknesses in a business plan, the entrepreneur should a. use technical jargon to confuse readers. b. ignore weaknesses as they might not attract investors. c. assume that investors will not find them. d. be straightforward with them and have an action plan.

d. be straightforward with them and have an action plan.

Before beginning to write a business plan, the entrepreneur should complete: a. a thorough market analysis. b. a feasability analysis. c. a patent application. d. a technical writing course.

b. a feasability analysis.

When making a decision regarding the extent of planning, an entrepreneur should consider the a. preferences of employees. b. complexity of the environment. c. level of uncertainty of the venture. d. competitiveness of the product.

c. level of uncertainty of the venture.

Nelson is writing about how he will attract and retain customers, how he will price his product, and how and where he will offer it for sale. Nelson is working on the __________ section of his business plan. a. customer service b. product/service plan c. marketing plan d. development plan

c. marketing plan

Capital-constrained entrepreneurs cannot afford to do much prior analysis and research because a. the affordability of properly conducted research is beyond the means at their disposal. b. the costs of any mistakes are lower than the risks of missing out on opportunistic actions. c. the limited profit potential and high uncertainty of the opportunity they pursue may make the benefits low compared to the costs. d. potential competitors could quickly discern the entrepreneurs' intentions and motives from their research.

c. the limited profit potential and high uncertainty of the opportunity they pursue may make the benefits low compared to the costs.

The discussion of the opportunity in the business plan should reflect: a. how the product or service will fill a need. b. the amount of return the investors should receive. c. the potential and attractiveness of the market and industry. d. the entrepreneur's enthusiasm for the business idea.

c. the potential and attractiveness of the market and industry.

In Guy Kawasaki's 10/20/30 rule for pitches, the numbers stand for:​ a. ​number of attendees/slides/minutes b. ​number of selling points/slides/font point size c. ​number of slides/minutes/font point size d. ​number of pictures/slides/minutes

c. ​number of slides/minutes/font point size

Once the decision is made to prepare a business plan, it should always be a comprehensive plan. a. True b. False

b. False

The financial plan section of a business plan should include balance sheets and income statements on an annual basis and cash flow statements on a monthly basis, all projected out for 2-3 years. a. True b. False

b. False