ENT 106 Final Exam
What is a business plan?
A written document that provides a lot of information about your business. Talk about goals, what is happening currently, risks, etc. Gives reader a clear picture about venture, where you think it is going and how you will get there
What is a Cash Flow Statement and what are the three (3) activities reported in it?
An analysis of the cash availability and cash needs of the firm that shows the effect of a firm's operating, investing, and financing activities on its cash balance Operating activities Investing activities Financing activities
What are the ten (10) Guidelines to Remember regarding a business plan?
Keep the plan respectably short • Readers of business plans are important people who refuse to waste time. Organize and package the plan appropriately • Table of contents, an executive summary, an appendix, exhibits, graphs, proper grammar, a logical arrangement of segments, and overall neatness are critical to the effective presentation of a business plan. Orient the plan toward the future • Creates an air of excitement while reading it and talks about the opportunities presented by the venture. Avoid exaggeration • Sales potentials, revenue estimates, and the venture's potential growth should not be inflated. Highlight critical risks • Demonstrates the entrepreneur's ability to analyze potential problems and develop alternative courses of action. Give evidence of an effective entrepreneurial team • Identify skills of personnel an how they will work together Do not over-diversify • Focus attention of the plan on one main opportunity for the venture Identify the target market • Substantiate the marketability of the venture's product or service by identifying the particular customer niche being sought. Keep the plan written in the third person • Use the pronouns "he, she, they, or them" Capture the reader's interest • Entrepreneurs need to capture the reader's interest right away by highlighting the uniqueness of the venture.
What is an Income Statement and what are the categories reported in it?
A profit or loss statement over a period of time Sales/Revenue Cost Gross profit/Net Rev. Expenses EBIT Taxes Profit/Net income
What are the names and formulas for the eight (8) financial ratios reviewed?
Balance Sheet Ratios • Current = Current assets / Current Liabilities • Quick = (Cash + Accounts Receivable) / Current Liabilities Leverage • Debt Ratio = Total Liabilities / Total assets • Debt to Equity Ratio = Total liabilities / Stockholder's Equity Income Statement Ratios • Gross Margin = Gross Margin / Sales • Net Margin = Net Profit before tax / Sales Efficiency • Return on Assets = Net Profit before tax / Total Assets • Return on investment = Net Profit before tax / Net Worth
What are the four (4) inhibitors to market research, and why are they mistaken beliefs?
Cost • Sometimes market research can be expensive. Some people think that only large companies have the funds to do market research. However, smaller companies can use very affordable marketing techniques. Complexity • Entrepreneurs can always obtain the advice and counsel of those skilled in statistical design and evaluation by calling on the services of marketing research specialists or university professors trained in this area. Strategic Decisions • Because of the cost and statistical complexity of marketing research, it should be conducted only when the decisions to be made are major. Much of entrepreneur's sales efforts could be enhanced through the results of such research. Irrelevancy • Entrepreneurs might think that the information they will gather is information that they already know. Some information gathered from market research is new to the entrepreneur. Even if it is information that they already know, that just lets the entr. Make the decision with confidence.
What are the three (3) types of successors?
Entrepreneurial successor • Someone who is high in ingenuity, creativity, and drive Managerial Successor • Someone who is interested in efficiency, internal control, and the effective use of resources Interim Specialist • A temporary person to step in and run the company.
What are the benefits of a business plan to the entrepreneur and financial sources?
Forces the entrepreneur to view operating strategies and expected results critically and objectively Competitive, economic, and financial analyses require the entrepreneur to evaluate assumptions about success Quantifies objectives and provides benchmarks for comparing forecasts with actual results Provides a tool for use in communications with outside financial sources, as well as operational guidance tool • Details the market potential and plans for securing a share of that market • Shows how the venture's intends to service debt or provide an adequate return on equity • Identifies critical risks and crucial events with a discussion of contingency plans • Contains the necessary information for a thorough business and financial evaluation
What are the key factors in succession?
Forcing Events • Extreme medical condition to where he/she cannot run the business any longer, legal problems, financial difficulties, and severe business decline. Pressure and interests inside the Firm • Someone within the business wants the current owner to step down so they can buy the business or step in and run the business Pressures and interests outside the firm • Someone outside of the firm is trying to buy your business
What are the five (5) unique Pricing Models in the social media age, and their definitions?
Freemium Model • Free with premium payments (Amazon Prime) Subscription Model • Requires users to pay a fee (generally monthly or yearly) to access a product or service. Advertising Model • Advertisements are sold against the traffic of the site Virtual Goods Model • Users pay for virtual goods, such as upgrades, points, or gifts, on a website or in a game. Affiliate Model • One business affiliates with another in a way that allows companies to earn money by sending potential customers to other affiliated sites
Define common marketing terms such as Market, Marketing/Market Research, Market Segmentation, Target Market, Differentiation, Positioning, and Marketing Mix
Market • A group of consumers/potential customers who have both purchasing power and unsatisfied needs that you can meet Marketing/Market Research • The gathering of information about a particular market, followed by analysis of that information Market Segmentation • The Process of identifying a specific set of characteristics that differentiates one group of consumers from another Target Market • After segmenting the market, the group that an entrepreneur focuses on because it is most likely to purchase the product/service Differentiation • Desired state where the firm's product/service has a different characteristic making it unique relative to competition Positioning • How the firm would like the target market to perceive its product/service; done via promotion, price, place Marketing Mix
What are the five (5) Fatal Visions (mistakes) in strategic planning?
Misunderstanding industry attractiveness • Many ENT's are attracted to large, fast growing industries. Tis is wrong because attractive barriers have high barriers of entry No real competitive advantage • Some ENT's just copy or imitate the strategy of their competitors which does not distinguish them from their competitors. Pursuing an unattainable competitive position • Some companies try to move too fast and cannot sustain their growth. Compromising strategy for growth • If an ENT sacrifices his or her venture's unique strategy in order to have fast growth, then the venture may go out of business. Failure to explicitly communicate the venture's strategy to employees • It is essential for every entrepreneur to clearly communicate the company's strategy
What is a direct sale and what are the typical reasons for using this exit strategy?
Most common Form of succession Boredom and Burnout Lack of operating and growth capital No heirs to inherit the business Desire liquidity Aging and health problems Desire to pursue other interests
What are the five (5) Major Stages in a Venture's Life Cycle?
New Venture Development • Activities with the initial formulation of the new venture's general philosophy, mission, scope, and direction Start-Up Activities • Creating a formal business plan, searching for capital, carrying out marketing activities, developing the entrepreneurial team Growth • Leadership transitions from entrepreneurial one-person focus to a managerial team-orientation to cope with venture's growth Business stabilization • a "SWING" STAGE THAT PRECEDES THE PERIOD WHEN THE FIRM EITHER SWINGS TOWARD GREATER PROFITABILITY or toward decline and failure Innovation or Decline • Firm either continues success by acquiring other innovative firms and developing new products/services or it declines
What are the five (5) pitfalls to avoid in planning?
No Realistic Goals • Lack of attainable goals, lack of time frame to accomplish things, lack of priorities, and lack of action stems Failure to Anticipate Roadblocks • No recognition of future problems, no admission of possible flaws or weakness in the plan, and no contingency or alternative plans No Commitment or Dedication • Copying the latest social media craze, no interest in researching the idea =, no desire to invest money, and the appearance of making a "fast buck" from an "app" or "whim" Lack of Demonstrated Experience (Business or Technical) • No experience in business, no experience in specific area of the venture, lack of understanding of the industry in which the venture fits, and failure to convey a clear picture of how and why the venture will work and who will accept it. No Market Niche (Segment) • Uncertainty about who will buy the basic ideas behind the venture, no proof of a need or desire for the good or product proposed, and assumption that customers or clients will purchase just because the entrepreneur thinks so.
What are the three (3) types of Financial Budgets and what is included in each one?
Operating budget • A statement of estimated income and expenses over a specific period of time Cash-Flow Budget • A statement of estimated cash receipts and expenditures over a specified period of time Capital Budget • The plan for expenditures on assets with returns expected to last beyond one year
What are the three (3) methods of evaluating capital projects?
Payback Method • The length of time required to "pay back" the original investment is determining criterion. Net Present Value • Helps minimize some of the short comings of the payback method by recognizing the future cash flows beyond the payback period. • A dollar today is worth more than a dollar in the future. Internal Rate of Return • Similar to NPV but this method discounts at a rate that makes the NPV of the project equal to zero.
What is the difference between Primary and Secondary Data in market research?
Primary • Information that is gathered specifically for the research project being conducted • Disadvantages: o Expensive • Advantages o Specific to your business Secondary • Information that has already been compiled by others • Advantages o Less expensive, readily available • Disadvantages o outdated/less useful, lacks specificity, questionable validity
What is the New Marketing Concept for Entrepreneurs? What are the 4 Ps and 4 Cs?
Product > Co-created - what is the company selling Promotion > Communities - How are you going to promote your product Price > Customizable - customizable, place - used logistics (how companies distribute their project) Place >Choice - Where is your business going to be located
What are the three (3) main Marketing Philosophies, and their definitions?
Production driven philosophy • Based on the belief you must "produce efficiently and worry about sales later Sales-driven philosophy • Focuses on personal selling and advertising oto persuade customers to buy the company's output. Consumer-driven philosophy • Relies on research to discover consumer preferences, desires, and needs before production actually begins.
What is a Balance Sheet and what are the categories reported in it?
Represents the firm's financial condition at a certain date Current assets = cash, accounts receivable, inventory Long term = improvements, equipment, property Current liabilities = Payable accrued liabilities Long term = Debt
What are the five (5) Steps in Strategic Planning? What is included in a SWOT Analysis?
SWOT Analysis • Strengths • Weaknesses • Opportunities • Threats Long-Term and short-term strategies Implement strategic plan Evaluate performance Follow-up action
What are the ten (10) main elements/sections of a business plan?
Section I: Executive Summary Section II: Business Description • General description of business • Industry background • Goals and potential of the business and milestones (if any) • Uniqueness of product or service Section III: Marketing • Research and analysis o Target market (customers) identified o Market size and trends o Competition o Estimated market share Section IV: Operations • Identify location advantages • Specific operational procedures • Personnel needs and uses • Proximity to suppliers Section V: Management • Management team - key personnel • Legal structure - stock and employment agreements, and ownership • Board of directors, advisors, and consultants Section VI: Financial • Financial forecast (pro forma financial statements) o Profit and loss o Cash flow o Break-even analysis o Cost controls o Budgeting plans Section VII: Critical Risks • Potential problems • Obstacles and risks • Alternative courses of action Section VIII: Harvest Strategy • Liquidity event (IPO or sale) • Continuity of business strategy • Identify successor Section IX: Milestone Schedule • Timing and objectives • Deadlines and milestones • Relationship of events Section X: Reference Page and Appendix
What are the three (3) main harvesting/exit strategies for a venture?
Succession • Giving the business to a family member or an employee IPO • Putting your company on the public market for the general public to buy shares of it Direct Sale • Directly selling the company to someone
What is a Break-Even Analysis and how is it calculated??
The number of units of sale that will allow me to cover all costs + the first profit
What are the five (5) reasons for the lack of strategic planning?
Time Scarcity • Not enough time to allocate planning in the face of day-to-day perating schedules Lack of knowledge • Entrepreneurs have minimal exposure to and knowledge of the planning process. Lack of Expertise/skills • Entrepreneurs typically are generalists, and they often lack the specialized expertise necessary for the planning process Lack of trust and openness • Entrepreneurs are highly sensitive and guarded about their businesses and decisions that affect them. Perception of high cost • Entrepreneurs perceive the cost associated with planning to be very high
What are the two (2) Types of Organizational Structures? Compare their effectiveness.
Vertical • More levels to work through less gets done Horizontal • Decisions can be made faster and more can get done