Essentials of Entrepreneurship and Small Business Management, 9e (Scarborough)
Chapter 5 Crafting a Business Plan and Building a Solid Strategic Plan
1) A business plan is a written summary of ________.
A) an entrepreneur’s proposed business venture
B) a business venture’s operational, financial, and marketing details
C) the skills and abilities of a business venture’s managers
D) All of the above
2) A business plan ________.
A) is a valuable managerial tool that helps an entrepreneur focus on developing a course for the
business in the future
B) is a valuable tool for convincing lenders or investors to put money into the business
C) forces an entrepreneur to think a business idea through, considering both its positive and its
negative aspects
D) All of the above
3) A solid business plan ________.
A) forces potential entrepreneurs to look at their business idea in the harsh light of reality
B) requires a potential entrepreneur to assess the venture’s chances of success more objectively
C) helps prove to outsiders, such as potential lenders and investors, that a business idea can be
successful
D) All of the above
4) The second essential purpose for creating a business plan is ________.
A) to guide the operation of the company by charting its future course and devising a strategy for
following it
B) to attract lenders and investors
C) to file with the SEC before a public stock offering
D) to attract potential managers and employees to run the new venture
5) The three “tests” associated with a business plan are ________.
A) reality, competitive, and value
B) competitive, profitability, and value
C) value, reality, and profitability
D) reality, value and litmus
6) The ________ test that a business plan must pass 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.
A) reality
B) competitive
C) value
D) profitability
7) The reality test that a business plan must pass to attract financing from lenders and investors
involves proving ________.
A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or
an attractive rate of return
C) that a market for the company’s product or service actually does exist and that the company
can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall
economy and has room for more competitors
8) The competitive test that a business plan must pass to attract financing from lenders and
investors involves proving ________.
A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or
an attractive rate of return
C) that a market for the company’s product or service actually does exist and that the company
can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall
economy and has room for more competitors
9) The value test that a business plan must pass to attract financing from lenders and investors
involves proving ________.
A) that the company can gain a competitive advantage over its key competitors
B) that the business venture will provide lenders and investors a high probability of repayment or
an attractive rate of return
C) that a market for the company’s product or service actually does exist and that the company
can actually build it for the cost estimates included in the plan
D) that the industry in which the business will compete is growing faster than the overall
economy and has room for more competitors
10) Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the
entrepreneur ________.
A) is probably the action-oriented sort of person they need running a business
B) needs to hire a consultant to write the plan for him
C) probably lacks the discipline to run a business
D) is just like the majority of entrepreneurs and will probably do quite well
11) To convince lenders and investors to put their money into the venture, a business plan must
prove to them that it offers a high probability of repayment or an attractive rate of return. This is
the ________ test.
A) attractiveness
B) competitive
C) reality
D) value
12) 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.
13) The primary purpose of building a business plan is to raise capital.
14) A well-prepared business plan forces an entrepreneur to assess the venture’s chances of
success more objectively.
15) 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.
16) The reality test that a business plan must pass 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.
17) The competitive test that a business plan must pass 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.
18) The value test that a business must pass to attract financing from lenders and investors
involves proving to them that the venture offers a high probability of repayment or an attractive
rate of return.
19) The data shows that writing a business plan increases the odds that a venture will
successfully accomplish important tasks (initializing product development, obtaining inputs,
starting marketing, talking to customers, and asking for external funds) as well as continue in
business.
20) Although building a business plan does not guarantee an entrepreneur’s success, it does
increase his or her chances of succeeding in business.
21) 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.
22) 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.
23) 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.
24) Potential lenders and investors believe that an entrepreneur who lacks the discipline to
develop a good business plan likely lacks the discipline to run a business.
25) Because the entrepreneur is the driving force behind a business idea, he or she should also be
the driving force behind the business plan.
26) Before presenting a business plan to potential lenders and investors, an entrepreneur must be
well informed and well prepared.
27) Explain at least two functions or purposes of preparing a business plan.
28) To get external financing, an entrepreneur’s plan must pass three tests with potential lenders
and investors. List and briefly explain all three.
29) “Sometimes the greatest service a business plan provides an entrepreneur is the realization
that the business venture just won’t succeed.” Explain this statement.
30) Which of the following is true regarding the process of building a business plan?
A) It allows an entrepreneur to replace “I think” with “I know” and to make mistakes on paper,
which is cheaper than making them in reality.
B) It reduces the risk and uncertainty of launching a company by “teaching” the entrepreneur
more about the industry, the market and the proposed venture.
C) It requires an entrepreneur to subject the business idea to a more objective and critical
evaluation.
D) All of the above
31) Which of the following is true about the preparation of a business plan?
A) The format should follow a “cookie-cutter” approach to ensure uniformity and consistency
with others and to promote ease of understanding.
B) 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.
C) The plan should cover every standard element in great detail and be at least 100 pages long to
prove to potential lenders and investors that the entrepreneur has studied the business and the
market opportunity.
D) The entrepreneur should avoid seeking the advice of professionals, such as accountants,
business professors, and attorneys.
32) Ideally, a business plan should be about ________ pages in length.
A) 10 to 20
B) 20 to 40
C) 40 to 75
D) 75 to 100
33) The ________ is also known as the “elevator pitch” and is written last, but is included as the
first part of the business plan and should summarize all the relevant points in about two pages.
A) loan proposal
B) business history
C) business profile
D) executive summary
34) The executive summary section of the business plan ________.
A) should be a concise summary of the business venture
B) should be no more than two pages long
C) must capture the reader’s attention and entice her/him to read the rest of the plan
D) All of the above
35) 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.
A) executive summary
B) mission statement
C) company history
D) marketing strategy
36) The company history section of the business plan typically includes ________.
A) significant financial and operational events
B) highlights of the key goals and objectives the company has accomplished in the past
C) a brief description of when and how the company was formed and how it has evolved over
time
D) All of the above
37) A business plan should contain certain basic elements, but it should also be tailored to the
individual company by emphasizing its particular personality and reflecting the entrepreneur’s
excitement for the business opportunity.
38) The most effective business plans follow the “cookie cutter approach,” following the
standard format most preferred by lenders and investors.
39) The ideal business plan should be at least 100 pages long to prove to potential lenders and
investors that the entrepreneur has studied the business and the market opportunity sufficiently.
40) A table of contents that allows lenders to navigate a business plan easily is an important
element of any business plan.
41) The executive summary serves as the thesis statement for the entire business plan.
42) 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 one page.
43) The executive summary of a business plan should highlight significant financial and
operational events.
44) The company’s mission statement expresses in words the entrepreneur’s vision for what
her/his company is and what it is to become.
45) 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.
46) 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.
47) In a business plan, both company goals and objectives should relate to the company’s
mission.
48) You have been asked to explain the basic elements of a sound business plan to your friend,
who is considering beginning a new business. What elements should you recommend (s)he
include in her/his business plan?
49) Which of the following is not one of the five Cs of credit?
A) Capital
B) Capacity
C) Collateral
D) Connections
50) ________ includes any assets an entrepreneur pledges to a lender as security for repayment
of the loan.
A) Collateral
B) Down payment
C) Margin
D) Condition
51) Business assets are lenders’ ________ resort for repayment of an outstanding loan.
A) first
B) last
C) primary
D) only
52) A small business must have a stable capital base before any lender will grant a loan.
53) A synonym for capacity is capital.
54) The conditions surrounding a loan request typically never affect the owner’s chance of
receiving funds.
55) What is “collateral” and why is it one of the “Cs” of credit?
56) When presenting a business plan to a venture capital forum, the allotted time is rarely more
than ________ minutes.
A) 40
B) 30
C) 20
D) 10
57) Which of the following is a basic area that a business plan presentation should cover?
A) The company and its products
B) The problem to be solved
C) The company’s business model
D) All of the above
58) The purpose of covering the ________ in the business plan presentation is to show lenders
and investors how the company will produce an attractive payback or payoff.
A) business model
B) capital structure
C) product line
D) marketing strategy
59) When presenting a plan to a venture capital firm, the allotted time is usually less than 20
minutes and rarely more than 30.
60) One of the areas a business plan presentation should cover is the capital structure.
61) It is a mistake to begin the business plan presentation by leading the audience into a long-
winded explanation about the technology on which the product or service is based.
62) Why is covering the company’s business model one of the basic areas in a business plan
presentation?
63) Which of the following is not one of the three components of intellectual capital?
A) Human
B) Structural
C) Competitor
D) Customer
64) ________ involves developing a game plan to guide a company as it strives to accomplish its
mission, goals, and objectives to keep it on its desired course.
A) Competitive advantage
B) Mission
C) Strategic management
D) Market segmentation
65) Few activities in the life of a business are as vital (or as overlooked) as that of developing a
strategy for success once a business moves past its start-up.
66) One of the biggest changes entrepreneurs face is the shift in the economy from a base of
financial to intellectual capital.
67) The three components of intellectual capital are human, structural, and customer.
68) What is strategic management? What role does a strategic plan play in a small company?
69) The value proposition that sets a company apart from its competitors and gives it a unique
position in the market, superior to its competition, is its ________.
A) mission statement
B) competitive advantage
C) competitive profile
D) strategic plan
70) Which of the following was not identified as a way for the typical small business to establish
a competitive advantage?
A) Lowering prices
B) Providing higher quality goods or services
C) Improving customer service
D) Doing whatever the company does for its customers better than its competitors
71) ________ are a unique set of capabilities that a company develops in key operational areas–
such as service, innovation, and others that allow it to potentially vault past its competitors.
A) Core competencies
B) Opportunities
C) Key success factors
D) Mission statements
72) The relationship between core competencies and competitive advantage is best described by
which statement?
A) Strengthening a company‘s competitive advantage strengthens its core competencies.
B) A company’s core competencies become the nucleus of its competitive advantage.
C) As a company’s core competencies become stronger, its competitive advantage becomes
weaker.
D) There is no relationship between core competencies and competitive advantage.
73) The key to entrepreneurial success over time is to build a ________ competitive advantage.
A) defensible
B) sustainable
C) coherent
D) random
74) Narrower product lines, smaller customer bases, and more limited geographic areas give
small companies a natural advantage over large businesses when preparing a strategic plan.