Chapter 6—The Business Plan: Visualizing the Dream
TRUE/FALSE
1. A business plan is a written document that sets out the basic idea underlying a business and its related
startup considerations.
2. 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.
3. Writing an effective plan is more important for internal purposes than for persons outside of the firm.
4. 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.
5. A business plan should always be written before deciding to go forward with a startup business idea.
6. An extensive business plan that is not followed is more valuable than no business plan at all.
7. Time and money are factors that affect the extent of business plan preparation.
8. Once the decision is made to prepare a business plan, it should always be a comprehensive plan.
9. A written business plan helps to ensure systematic, complete coverage of the important factors to be
considered in starting a new business.
10. The executive summary of a business plan presents a firm’s history and its form of organization.
11. 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.
12. Pro forma financial statements reflect the past financial performance of a firm.
13. Though all financial statements are important, the cash flow statement deserves special attention.
14. Business plans should provide facts to support the statements and not just tell a story.
15. Because prospective investors receive so many business plans, they cannot take time to review each in
any detailed fashion.
16. Investors are more product-oriented than market-oriented.
17. Business plans should be prepared so that they are attractive in appearance and well organized.
18. Describing a product or service should be in lay terms even if the product is technical in nature.
19. 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.
20. A business model explains how a business will generate profit and cash flow from its revenue streams
considering its cost structure and investment size.
21. A loss leader is a revenue stream where products are sold at a loss to hopefully create demand in a
more profitable revenue stream.
22. A component of the business model that provides a framework for estimating the nature and types of
costs and expenses a firm may incur is the maximum investment.
23. Incubator organizations can provide advice on structuring a new business.
24. 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.
25. A business plan should represent the entrepreneur’s vision and goals for the proposed company.
MULTIPLE CHOICE
1. A business plan is best described as a
a.
crystal ball picture.
b.
money plan.
c.
contingency plan.
d.
game plan.
2. The primary outside users of business plans are
a.
employees.
b.
investors and lenders.
c.
customers.
d.
government agencies.
3. 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
4. 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.
5. The document that assists an entrepreneur and the management team focus on important issues and
activities is
a.
the organization chart.
b.
the budget.
c.
the sales analysis.
d.
the business plan.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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
12. The short plan would have the least amount of information about
a.
pricing.
b.
supporting documentation.
c.
competition.
d.
distribution channels.
13. Before beginning to write a business plan, the entrepreneur should complete:
a.
a thorough market analysis.
b.
a feasibility analysis.
c.
a patent application.
d.
a technical writing course.
14. 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.
15. 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.
16. The most beneficial plan when facing significant change in the external environment is a
a.
comprehensive.
b.
narrative.
c.
subjective.
d.
short.
17. 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.
18. An entrepreneur should think of ways to ____________ the resources necessary for startup.
a.
outsource
b.
insure
c.
maximize
d.
minimize
19. 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”.
20. 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.
21. 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
22. An overview of the significant points of a business plan appear in the
a.
financial plan.
b.
general company description.
c.
executive summary.
d.
operating plan.
23. 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.
24. The type of executive summary that briefly covers all aspects of the business plan giving each topic
relatively equal treatment is the ____ executive summary.
a.
narrative
b.
synopsis
c.
dehydrated
d.
comprehensive
25. 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
26. 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.
27. 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.
28. 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
29. The industry, target customer, and competitor analysis section should:
a.
begin to describe the company.
b.
provide the context of 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.
30. The Product/Service plan section should include
a.
a description of the competition’s products.
b.
a descriptions 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.
31. 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.
32. 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.
33. 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
34. Orlando is 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
35. 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.
36. 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
37. 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.
38. Prentiss is writing about the 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
39. 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
40. 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.
41. 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.
42. 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.
43. 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
44. 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?
45. 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.
46. When dealing with weaknesses in a business plan, the entrepreneur should
a.
use technical jargon to confuse reader.
b.
ignore the weakness as this might not attract investors.
c.
assume that investors will not find them.
d.
be straightforward with them and have an action plan.
47. 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.
48. Plans that appeal effectively to investors are
a.
long and thorough.
b.
market-oriented.
c.
product-oriented.
d.
ten or fewer pages.
49. 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.
50. 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 a maximum investment component.
d.
forces the entrepreneur to be more discipline about financial projections.
51. In writing the business plan, an entrepreneur should remember that
a.
interested investors will commit the time necessary to fully understand the proposed
venture.
b.
certain features will be appealing to investors, while others are distinctly unappealing.
c.
investors are too busy to read through the business plans that come across their desk.
d.
the quality of this plan has little bearing on the potential for success in the startup.
52. 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.
53. Jamie has decided to start a franchise. Typically, the business type would require a ______ revenue
model.
a.
volume
b.
subscription
c.
advertising
d.
licensing
54. 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.
55. 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.
56. 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
57. 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.
58. 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
59. Business planning
a.
is an ongoing process.
b.
is an exacting science.
c.
equals business success.
d.
will prevent unexpected events.
60. 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.
ESSAY
1. Jerry is starting an athletic apparel store with his brother–in-law providing all funding. Identify how
possible insiders and outsiders and explain how each would use a business plan.
2. Describe the two types of business plans and state which plan would be appropriate for a proposal for
a new bed and breakfast inn for a rural area.
3. Why is the executive summary so important for a business plan?
4. Discuss each pro forma statement in the financial plan in terms of time frame. Identify important
considerations in the construction of these pro forma statements.
5. List five questions that a possible investor would want answered concerning the market of the new
business.
6. Janice is opening a golf shop and is trying to identify how the company would gain revenue. What
type of revenue stream could Janice’s Golf Shop have?
7. List and briefly discuss suggestions for avoiding costly mistakes when hiring a business plan
consultant.
8. Discuss the statement “Writing a business plan is primarily an ongoing process and only secondarily
the means to an outcome.”
MATCHING
For each definition, select the term that best fits.
a.
business model
k.
management team
b.
business model risk
l.
marketing plan
c.
business plan
m.
maximum investment
d.
comprehensive plan
n.
offering
e.
cost structures
o.
operations and development plan
f.
critical risks
p.
product/service plan
g.
executive summary
q.
pro forma statements
h.
exit strategy
r.
revenue model
i.
feasibility analysis
s.
short plan
j.
financial plan
1. A complete business plan that provides an in-depth analysis of the critical factors that will determine a
firm’s success or failure, along with all the underlying assumptions
2. A component of the business model that provides an estimate of the types and amounts of investment
required to achieve positive profits and cash flows
3. A section of the business plan that conveys a clear and concise overall picture of the proposed venture
and creates interest in the venture
4. Projections of a company’s financial statements for up to five years, including balance sheets, income
statements, and statements of cash flows, as well as cash budgets
5. A section of the business plan that describes a new firm’s organizational structure and the backgrounds
of its key players
6. A section of the business plan that offers information on how a product will be produced or a service
provided, including descriptions of the new firm’s facilities,labor, raw materials, and processing
requirements
7. A component of the business model that provides a framework for estimating the nature and types of
costs and expenses a firm may incur
8. An abbreviated business plan that presents only the most important issues and projections for the
business
9. A section of the business plan that focuses on options for cashing out of the investment
10. A component of the business model that identifies risks in the model and how the model can adjust to
them
11. A section of the business plan that indicates to an investor how much money is needed, and when and
how the money will be used
12. A section of the business plan that projects the company’s financial position based on well–
substantiated assumptions and explains how the figures have been determined
13. A document that outlines the basic concept underlying a business and describes how that concept will
be realized
14. A component of the business model that identifies the different types of revenue streams a firm
expects to receive
15. A section of the business plan that describes the product and/or service to be provided and explains its
merits
16. A section of the business plan that identifies the potential risks that may be encountered by an investor
17. A section of the business plan that describes the user benefits of the product or service and the type of
market that exists
18. An analysis of how a firm plans to create profits and cash flows given its revenue sources, its cost
structures, the required size of investment, and sources of risk
