Entrepreneurship and Effective Small Business Management, 11e, Global Edition
(Scarborough)
Chapter 8 New Business Planning Process: Feasibility Analysis, Business Modeling,
and Crafting a Winning Business Plan
1) For entrepreneurs, a business plan is:
A) a systematic, realistic evaluation of a venture’s chances for success in the market.
B) a way to determine the principal risks facing the venture.
C) a game plan for managing the business successfully.
D) All the above
2) A business plan performs a number of functions including:
A) identifying how many employees will be needed in the business start-up phase.
B) attracting capital for the start-up.
C) providing the entrepreneur with a plan for managing inventory.
D) providing the basis for purchasing property and casualty insurance for the new company.
3) The ________ becomes the document that summarizes the analysis that has been done to
justify a new business.
A) business plan
B) cash budget
C) pro forma
D) financial statement
4) A business plan:
A) is developed through an intuitive process by which the entrepreneur records his/her plans for
the business in the future.
B) focuses on the internal elements of the business.
C) forces an entrepreneur to think a business idea through, considering both its positive and its
negative aspects.
D) is a strategic plan for a business that must be supplemented by operational plans once
financing is secured.
5) A well-developed business plan provides the entrepreneur with a number of benefits, such as:
A) a way to identify probable financial backers.
B) a valuable tool for recruiting management to help in running the business.
C) assisting the entrepreneur in going public with his/her new venture on the stock market.
D) determining the principal risks confronting the business.
6) The primary purpose of building a business plan is to:
A) raise capital.
B) attract potential employees.
C) provide direction, to create a “target” to shoot for.
D) meet SEC requirements designed to protect lenders and investors.
7) 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 making a public stock offering.
D) to attract potential managers and employees to run the new venture.
8) Potential investors tend to believe that if an entrepreneur can’t develop a good plan:
A) he/she is probably the action-oriented sort of person they need running a business.
B) he/she needs to hire a consultant to write the plan for him/her.
C) he/she probably lacks the discipline to run a business.
D) then the entrepreneur is just like the majority of entrepreneurs and will probably do quite
well.
9) Which one of the following is not a “test” that an entrepreneur’s business plan must pass?
A) The reality test
B) The competitive test
C) The value test
D) The ability test
10) The real value in preparing a business plan is:
A) in attracting experienced management talent to help grow the business.
B) in the creative process the entrepreneur has to go through.
C) in identifying viable funding sources while “fleshing out” the business concept.
D) None of these
11) A business plan:
A) reduces the risk and uncertainty involved in starting a new company.
B) is a guarantee of success for the small company.
C) should be done by professional writers in consultation with the owner.
D) should be kept in outline form to avoid over structuring the company.
12) The ________ is the first part of the business plan. It summarizes all the relevant points of
the deal, but it should be the last part written.
A) executive summary
B) mission statement
C) industry analysis
D) marketing strategy
13) The ________ expresses the entrepreneur’s vision for the company and what he/she hopes it
will become.
A) executive summary
B) mission statement
C) industry analysis
D) marketing strategy
14) The ________ highlights significant financial and operational events in the company’s life
and should concentrate on the company’s accomplishments.
A) executive summary
B) company history
C) business and industry profile
D) marketing strategy
15) The ________ acquaints lenders and investors with the nature of the business and the general
goals and objectives of the company.
A) executive summary
B) company history
C) business and industry profile
D) marketing strategy
16) ________ are long-range, broad statements of what the company plans to accomplish in the
distant future, and they guide the overall direction of the company.
A) Policies
B) Goals
C) Procedures
D) Objectives
17) The company’s overall direction and answer to the question, “Where do I want the company
to be in 3 to 5 years?” is answered in this section of the business plan.
A) executive summary
B) company history
C) business and industry profile
D) marketing strategy
18) ________ are short-term, specific targets which are attainable, measurable, and controllable.
A) Objectives
B) Policies
C) Goals
D) Standard operating procedures
19) The business and industry profile section of the business plan includes:
A) significant financial and operational events in the life of the company.
B) how the entrepreneur intends to accomplish the company’s goals and objectives.
C) the nature and characteristics of the target market.
D) the historical evolution of the market, market size, ease of entry, etc.
20) A solid business plan is marked by a number of characteristics including:
A) broad, general market research on the overall industry and business environment.
B) a description of the management team.
C) a minimum of financial detail.
D) an optimistic financial projection and understandable risk statement.
21) Discussion of profitability and anticipated profitability of firms in the market segment, along
with the entry, exit, and merger of those firms, is all part of the ________ section of the business
plan.
A) business strategy
B) company history
C) business and industry profile
D) marketing strategy
22) In the business strategy section of the business plan, the owner needs to explain to investors:
A) significant financial and operational events in the life of the company.
B) how the entrepreneur intends to accomplish the company’s goals and objectives.
C) the nature and characteristics of the target market.
D) the historical evolution of the market, market size, ease of entry, etc.
23) Kyoto is writing a description of her new venture’s product line and how it compares to her
competitors’ product lines. She is writing the ________ portion of her business plan.
A) description of her firm’s product
B) marketing strategy
C) competitive analysis
D) business strategy
24) Defining the target market’s potential and describing its characteristics is part of the:
A) description of the product line.
B) marketing strategy portion of the business plan.
C) competitive analysis.
D) business strategy section of the business plan.
25) Proving that a profitable market exists involves:
A) proving that customers in the marketplace have a need for the good or service and are willing
to pay for it.
B) honestly comparing your firm’s products with a competitor’s products, showing your
advantages.
C) explaining how you will achieve your business objectives and market share goals.
D) showing the linkage between your plan of operation and your financial profitability.
26) An effective market analysis identifies:
A) your product’s competitive advantage.
B) how you will achieve your market goals, what methods will be used.
C) the officers’/owners’ resumes.
D) how the product will be advertised.
27) An explanation of how the product will be distributed is contained within the:
A) description of the product line.
B) marketing strategy portion of the business plan.
C) competitive analysis.
D) business strategy section of the business plan.
28) The focus of the competitor analysis section of the business plan is to:
A) demonstrate the existence of the market for your product.
B) show that your experienced management team is better than your competitors’.
C) demonstrate your company’s advantage over competitors.
D) describe your overall product line.
29) Investors look for which of the following when reviewing the experience of the management
team of a new venture?
A) Assets that can be used as collateral for the loan/investment
B) Experience, talent, and integrity
C) Plans for keeping the management team in place
D) A hiring strategy that has the customer clearly in focus
30) The organization chart is described in which section of the business plan?
A) The plan of operation
B) The resumes of the officers/owners
C) The business strategy
D) The executive summary
31) The plan of operation of the company within the business plan should detail:
A) the experience of the management team.
B) the production process for the product being sold.
C) the financial assets of each of the officers.
D) plans for keeping the important officers in place with the company.
32) When creating financial forecasts in a business plan for a proposed venture, an entrepreneur
should:
A) be sure that all forecasts are realistic.
B) embellish all forecasts to make the numbers look really impressive.
C) include any assets of the officers/owners that can be used as collateral.
D) list all previous loans which are in default.
33) Which of the following statements is true?
A) The useful life of the financed asset must be less than the maturity of the loan.
B) An entrepreneur should try to camouflage any weaknesses in the small business.
C) Projected financial statements should prove the company’s ability to repay the loan.
D) Officers’ personal assets that can be used as collateral must be included in the financial
statement.
34) The loan proposal portion of the business plan should include:
A) three sets of forecasts: optimistic, realistic, and pessimistic.
B) a realistic timetable for repayment or for investors to exit.
C) pro forma for two to three years.
D) a listing of anyone who owns more than 20% of the business.
35) The process of testing the business model on a small scale before committing serious
resources to launch a business that might not work is called:
A) benchmarking.
B) business prototyping.
C) scaling.
D) lean modeling.
36) Business plans need to pass three tests:
A) the financial test, the market test, and the management test.
B) the appearance test, the substance test, and the concept test.
C) the reality test, the competitive test, and the value test.
D) the presentation test, the content test, and the application test.
37) An external test of a business plan that revolves around proving that a market exists is the:
A) competitive test.
B) consumer test.
C) value test.
D) reality test.
38) When presenting the business plan it is important to:
A) show enthusiasm for the venture.
B) use visual aids.
C) avoid technical jargon.
D) do all of these.
39) The C of the five Cs that is a synonym for “cash flow” is:
A) capital.
B) character.
C) collateral.
D) capacity.
40) The most common reason cited by banks for rejecting small business loans is:
A) poor credit history.
B) undercapitalization or too much debt.
C) lack of collateral.
D) insufficient cash flow or poor profitability.
41) Any assets pledged to the bank as security for repayment of the loan are the ________ of the
five Cs.
A) collateral
B) capacity
C) capital
D) conditions
42) The intangible C that lenders examine in evaluating the business plan is that of:
A) capital.
B) character.
C) collateral.
D) capacity.
43) The C of the five Cs that relates to the circumstances relating to the business, such as
potential growth in the market, form of ownership, location, etc., is called:
A) capital.
B) capacity.
C) conditions.
D) character.
44) The executive summary should contain which of the following information?
A) A brief statement of the financial needs of the business and what the money would be used
for
B) A short description of potential buyers
C) A brief history of the business
D) A complete description of your business
45) A description of the key factors that will dictate the success of your business quality, price
competitiveness, etc. should be contained in the ________ section of the business plan.
A) market analysis
B) executive summary
C) description of the business
D) competitor analysis
46) The form of ownership in your company should be explained in the ________ portion of the
business plan.
A) business strategy
B) plan of operation
C) executive summary
D) market analysis
47) You should identify your key people, explain their backgrounds and what they bring to the
business, in:
A) the executive summary.
B) the description of the management team.
C) the strategic plan.
D) the business strategy.
48) Your cash budget and an explanation of how much money you need to make your company
and product a long-term success are the subject matter of the:
A) financial plan.
B) strategic plan.
C) business strategic plan.
D) strategic action plan.
49) A ________ is what a customer gains from the product or service feature.
A) feature
B) bonus
C) discount
D) benefit
50) One technique involves ________, in which entrepreneurs test their business models on a
small scale before committing serious resources to a business that might not work.
A) a test run
B) business prototyping
C) duplicate business models
D) model prototyping
51) An executive summary should be:
A) a snapshot of the entire plan.
B) 3 to 5 pages.
C) written first.
D) All of the above
52) The phrase, “avoid the off-the-shelf, ‘cookie-cutter’ approach that produces look-alike plans”
means:
A) avoiding a business plan that looks ordinary.
B) that every business plan is unique.
C) the business plan should reflect the excitement of the entrepreneur.
D) All of the above
53) An executive summary should:
A) explain the basic business model and the problem the business will solve for customers.
B) briefly describe the owners and key employees, target market(s), and financial highlights.
C) briefly describe the company’s competitive advantage.
D) All of the above
54) A great source that profiles a variety of industries and offers projections for the future trends
is:
A) the Handbook.
B) an encyclopedia.
C) the Beige Book.
D) the Blue Book.
55) Proving that a profitable market exists involves:
A) showing customer interest.
B) documenting market claims.
C) Both A and B
D) Neither A nor B
56) A business plan presentation should cover:
A) the company’s background and its products or services with a market analysis and a
description of the opportunities it presents.
B) the company’s competitive edge and the marketing strategies it will use to promote that edge.
C) the management team and its members’ qualifications and experience.
D) All of the above