Entrepreneurship 9th edition hisrich test bank 1

Entrepreneurship 9th Edition Hisrich

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True / False Questions

Difficulty: Medium

p.179

Chapter 07 - The Business Plan: Creating and Starting the Venture

Chapter 07 The Business Plan: Creating and Starting the Venture Answer Key

1. Belinda Guadarrama was Hispanic Businesswoman of the year in 2002. TRUE

Chapter 07 - The Business Plan: Creating and Starting the Venture

2.Planning the new venture is a process that never ends.

Difficulty: Easy p.181

3.The business plan addresses only short term decision making.

Difficulty: Easy p.181

4.To maintain objectivity, the business plan should not be written by the entrepreneur.

Difficulty: Medium p.182

5.Before writing the business plan an entrepreneur should conduct an objective self-assessment of his or her abilities which includes areas such as planning and sales skills.

Difficulty: Easy p.182

6.In writing the business plan an entrepreneur should consider four perspectives: the investor, the customer, the employees and themselves.

Difficulty: Medium p.182

7.The depth and detail in the business plan depend on the size and scope of the proposed new venture.

Difficulty: Medium p.183

8.Thebusiness planis aprivatedocument and should not beread byemployees and customers.

Difficulty: Medium p.183

9.In the business plan the entrepreneur should address the needs of the entrepreneur and the needs of the market; the investor's perspective is not important.

Difficulty: Medium p.183

10.The process of writing the business plan provides a self-assessment for the entrepreneur.

Difficulty: Easy p.183

11. The best way to address the concerns of all potential audiences when writing the business plan is to rely exclusively on a computer software package.

Difficulty: Medium p.184

12.The business plan does not help an entrepreneur to obtain financing.

Difficulty: Easy p.185

13.The four Cs of credit are computers, capital, compromise, and collateral.

Difficulty: Medium p.185

Chapter 07 - The Business Plan: Creating and Starting the Venture

14. Investors often spend a lot of time conducting background checks.

Difficulty: Medium p.185

15. Venture capitalists demand high rates of return for their investment in the new venture.

Difficulty: Medium p.185

16. In preparing the business plan, entrepreneurs can provide their own perspective and should consider the needs of external sources.

Difficulty: Medium p.185

17. A quick feasibilitystudyshould be conducted before preparingthe business plan to uncover possible barriers to success.

Difficulty: Medium p.186

18.It is recommended that an entrepreneur avoid using the Internet as a resource for finding information to write a business plan because the information found there is often incorrect and unreliable.

Difficulty: Easy p.187

19. In building a marketing plan, the entrepreneur should use a process designed as a pyramid, starting with narrow data and working down to broader-based information.

Difficulty: Hard p.188

20. Most entrepreneurs have little difficulty with gathering market information.

Difficulty: Medium p.188

Chapter 07 - The Business Plan: Creating and Starting the Venture

21. Standard & Poor's and RDS Tablebase are good sources of industry and market data.

Difficulty: Hard p.189

22. When gathering financial information, the entrepreneur should develop a budget that includes expected sales and expense figures for the first year.

Difficulty: Medium p.191

23. To determine the figures in the budget, the entrepreneur should identify benchmarks or norms in the industry.

Difficulty: Easy p.191

24. Pro forma financial statements should be prepared semi-monthly for the first year of the venture.

Difficulty: Medium p.191

25. Revenue sources such as sales and any externally available funds should be included in the budget.

Difficulty: Medium p.191

26. In 2011 online retail sales are expected to increase by 12%.

Difficulty: Hard p.192

27. In 2011 online retail sales are expected to reach 400 billion dollars.

Difficulty: Medium p.192

Chapter 07 - The Business Plan: Creating and Starting the Venture

28.The Internet is a useful tool to access information but is generally not a good vehicle for marketing goods and services.

Difficulty: Medium p.192

29. Newsgroups can be useful for information gathering.

Difficulty: Easy p.192

30. The executive summary section of the business plan should be written first, before other sections are developed.

Difficulty: Medium p.194

31. The introductory page of the business plan should contain the amount of financing needed.

Difficulty: Medium p.194

32. An evaluation of cultural changes is irrelevant to the venture and should not be included in the business plan.

Difficulty: Medium p.195

33. The executive summary section is only meant to highlight key factors and motivate the person holding the plan to read it in its entirety.

Difficulty: Medium p.195

34.The entrepreneur need not concentrate on environmental analysis since most of the external factors are generally uncontrollable.

Difficulty: Easy p.195

Chapter 07 - The Business Plan: Creating and Starting the Venture

35. Discussing an exit strategy in the executive summary is not a good idea under any circumstances.

Difficulty: Medium p.195

36. If a venture is not a manufacturing firm, an operations plan is not necessary.

Difficulty: Medium p.199

37. The organizational plan section of the business plan should describe the venture's form of ownership.

Difficulty: Medium p.200

38. Since bills have to be paid at different times of the year, cash flow projections should be presented weekly.

Difficulty: Easy p.201

39. Letters from customers, distributors, or subcontractors are examples of information that should be included in the executive summary of a business plan.

Difficulty: Medium p.202

40. Bankers agree that most business failures are due to the entrepreneur's inability to obtain financing.

Difficulty: Medium p.203

41. Typically business plan projections are made in a 36-month schedule. FALSE

Difficulty: Medium p.203

Multiple Choice Questions

42. Which of the following is not true about Belinda Guadarrama, featured in the opening profile of chapter 7?

A. She was Hispanic Businesswoman of the year in 2002.

B. She dropped out of high school.

C. She is president and CEO of GC Micro Corporation.

D. Her company has 30 employees and $35 million in revenues.

Difficulty: Hard p.179-180

43. Which of the following statements is (are) true?

A. The business plan describes both internal and external elements.

B. The preliminary business plan should be prepared by a lawyer.

C. Most business plan resources on the Internet are too complex and expensive to be of use to the new venture.

D. Once made, a business plan should not be changed.

Difficulty: Medium p.181

44. Which of the following interested parties should not have access to the venture's business plan?

A. Competitors

B. Lenders

C. Investors

D. Suppliers

Difficulty: Easy p.183

45. When determining how much help is needed to write the business plan an entrepreneur should conduct a self-assessment. In this self-assessment which skill set would not be considered?

A. product design

B. organizing

C. venture capital

D. people management

Difficulty: Hard p.182

Chapter 07 - The Business Plan: Creating and Starting the Venture

46. The depth and detail of a business plan depend on:

A. the target audience.

B. the size and scope of the new venture.

C. the experience of the entrepreneur.

D. the amount of capital needed.

Difficulty: Medium p.183

47. ___________ is not one of the main perspectives an entrepreneur should consider when writing the business plan.

A. The employee's perspective

B. The marketing perspective

C. The investor's perspective

D. The entrepreneurs own perspective

Difficulty: Medium p.183

48. While preparing the first draft of the business plan, the entrepreneur should not:

A. prepare it from his or her personal viewpoint.

B. take into consideration the constituencies that will ultimately read and evaluate the plan's feasibility.

C. prepare it with an aim to identify possible barriers to success.

D. try to define the goals and objectives of the venture.

Difficulty: Medium p.185

49. When evaluating business plans _________ are primarily concerned with the four Cs of credit.

A. investors

B. employees

C. vendors

D. lenders

Difficulty: Medium p.185

50. Investors often place more emphasis on the entrepreneur's _________ than lenders do.

A. character

B. experience

C. financial records

D. personal viewpoint

Difficulty: Medium p.185

Chapter 07 - The Business Plan: Creating and Starting the Venture

51. The business plan presentation for potential investors:

A. should be presented only in writing.

B. should contain no negative projections.

C. should enable the entrepreneur to "sell" his or her business concept in a designated period of time.

D. should provide the entrepreneur's own perspective.

Difficulty: Medium p.186

52. Before beginning the business plan, the entrepreneur should define the venture's goals and objectives. These goals should be:

A. general and broad.

B. feasible.

C. guaranteed.

D. unique.

Difficulty: Medium p.187

53. _______ and ______ are good sources of information for financial and industry operating ratios.

A. RMA eStatement Studies and BizMiner

B. Market Share Reporter and the SBA report

C. U.S. Census Statistical Abstracts and MarketLine

D. Encyclopedia for American Industries and Mintel Reports

Difficulty: Hard p.189

54. Which U.S. Census publication gives statistics such as industry outputs, inputs, and operating data on manufacturing activity, by industry groups?

A. Service Annual Survey

B. Current Industrial Report

C. County Business Patterns

D. Annual Survey of Manufacturers

Difficulty: Medium p.189

Chapter 07 - The Business Plan: Creating and Starting the Venture

55. Which U.S. Census publication provides information about production and shipments on a wide range of products?

A. Service Annual Survey

B. Current Industrial Report

C. County Business Patterns

D. Annual Survey of Manufacturers

Difficulty: Medium p.189

56. Which source of financial information is a compilation of 150,000 financial statements of banking customers with ratios and benchmarks?

A. RMA eStatement Studies

B. Market Share Reporter

C. U.S. Census Statistical Abstracts

D. Encyclopedia for American Industries and Mintel Reports

Difficulty: Hard p.189

57. All of the following would be an operations information need except:

A. raw materials.

B. break even numbers.

C. equipment.

D. labor skills.

Difficulty: Medium p.190-191

58. When collecting marketing information the entrepreneur should:

A. not include general environmental information.

B. start with narrow-based data and work down to a more broader scope of information.

C. identify competitors.

D. not aim to define a specific market.

Difficulty: Medium p.190

59. To assess the potential profitability of a venture, the entrepreneur needs to ascertain expected sales and expense figures for the first:

A. month.

B. year.

C. quarter.

D. three years.

Difficulty: Medium p.191

Chapter 07 - The Business Plan: Creating and Starting the Venture

60. Groups of Internet visitors who share opinions and have similar interests are called:

A. page groups.

B. newsgroups.

C. library sources.

D. news homes.

Difficulty: Medium p.192

61. ______ represents the newsgroups on the Internet where the entrepreneur can use key words to identify the most appropriate newsgroups.

A. NewsNet

B. YouTube

C. Bebo

D. Usenet

Difficulty: Hard p.192

62. The usefulness of the title or introductory page is:

A. that it provides information about the company.

B. such that it requires several pages.

C. questionable, especially to investors.

D. that it contains backup data.

Difficulty: Medium p.194

63. Which of the following is not a part of the introductory page?

A. the name and address of the company

B. statement of confidentiality

C. amount of financing needed

D. the names and addresses of all managers

Difficulty: Medium p.194

64. The executive summary section should:

A. be prepared before the total plan is written.

B. be about two to three pages in length.

C. highlight key financial milestones that have been achieved.

D. try to summarize every section of the plan.

Difficulty: Easy p.194

Chapter 07 - The Business Plan: Creating and Starting the Venture

65. The section of the business plan in which the entrepreneur identifies changes occurring on the national and international level is the:

A. merchandising plan.

B. description of the venture.

C. executive summary.

D. environmental and industry analysis.

Difficulty: Medium p.195

66. An assessment of external uncontrollable variables that may impact the business plan is known as:

A. an environmental analysis.

B. a description of the venture.

C. a trend analysis.

D. an executive summary.

Difficulty: Medium p.195

67. All of the following are questions that should be considered in the environmental and industry analysis section of the business plan except:

A. What are total industry sales over the past five years?

B. Who are the nearest competitors?

C. What is my promotional strategy?

D. What is anticipated growth in this industry?

Difficulty: Medium p.195-196

68. The part of the plan that describes the location and size of the business, the personnel and office equipment that will be needed, and the history of the venture is called the:

A. organizational plan.

B. description of the venture.

C. production plan.

D. executive summary.

Difficulty: Hard p.197

69. All of the following would be considering part of the description of the venture section of the business plan except:

A. the business location.

B. the history of the business.

C. what equipment will be purchased.

D. the projected statement of cash flows for the first year.

Difficulty: Medium p.198

70. If the new venture is a manufacturing operation a(n) __________ in the business plan is necessary.

A. ownership plan

B. quality control plan

C. production plan

D. partnership agreement

Difficulty: Easy p.199

71. Which of the following is not true about the operations plan portion of the business plan?

A. Only service businesses need an operations plan.

B. An operations plan describes the flow of goods and services from production to customer.

C. The role of technology in the business transaction process is discussed.

D. The shipping process and inventory control process can be discussed in this section.

Difficulty: Medium p.199-200

72. If the new venture is not a manufacturing operation, but a retail store or service, a new section of the business plan is required which is called the:

A. organizational plan.

B. operational plan.

C. production plan.

D. executive summary.

Difficulty: Medium p.199

73. Distribution, pricing, and promotion of the product are discussed in which section of the plan?

A. Marketing

B. Production

C. Merchandising

D. Organization

Chapter 07 - The Business Plan: Creating and Starting the Venture

Difficulty: Medium p.200

74. The organization plan describes the business':

A. physical plant and machinery layout.

B. location as well as its plant(s).

C. system of distribution.

D. form of ownership.

Difficulty: Medium p.200

75. _______ identifies potential hazards and alternative strategies to meet business plan goals and objectives.

A. Assessment of risk

B. Financial planning

C. Alternative planning analysis

D. The financial plan

Difficulty: Medium p.201

76. Which of the following documents is not usually included in the Financial Plan?

A. Statement of cash flows

B. Income statement

C. Price lists from suppliers

D. Projected balance sheet

Difficulty: Easy p.201

77. The business plan is designed to guide the entrepreneur:

A. through the distribution process.

B. through the first year of operations.

C. in the financing process.

D. in case of a change in ownership.

Difficulty: Medium p.202

78. The tendency among many entrepreneurs is to:

A. avoid planning.

B. not take initiative.

C. not market their product or services.

D. lose focus on the business plan.

Difficulty: Medium p.203

Chapter 07 - The Business Plan: Creating and Starting the Venture

79. By controlling __________, the firm can ensure maximum service to the customer.

A. production

B. sales

C. costs

D. inventory

Difficulty: Medium p.203

80. ______ control compares the cost figures estimated in the business plan with actual day-to-day operations costs.

A. Production

B. Sales

C. Inventory

D. Costs

Difficulty: Medium p.203

81. Which of the following is not a common reason why business plans fail?

A. objectives are not measurable

B. no customer need was established

C. the entrepreneur has no experience in the planned business

D. the promotional strategy was not taken seriously

Difficulty: Medium p.204

Short Answer/Essay Questions

82. Identify5 ofthe 9 skill areas an entrepreneurshould review in orderto determine whetheror not they need help writing parts of the business plan.

Accounting/taxes

Planning

Forecasting

Marketing research

Sales

People management

Product design

Legal issues

Technology

Difficulty: Medium p.182 Table 7.1

83. Draw the Upside-Down Pyramid Approach to Gathering Market Information.

General Environmental and Demographic Trends

National Industry Trends

Local Environmental and Demographic Trends

Local Industry Trends

Local Competition Strengths and Weaknesses

Market Positioning

Market Objectives

Difficulty: Medium p. 188 Reference Figure 7.1

84. List three sources of Financial and Industry Operating Ratios from the text.

RMA eStatement Studies

Alamanac of Business and Industrial Ratios

Industry Norms and Key Ratios Finanical Studies of Small Business Bizminer

Difficulty: Medium/Hard p.189

85. What types of information might an entrepreneur needs in regards to manufacturing operations?

• Location. The company’s location and its accessibility to customers, suppliers, and distributors need to be determined.

• Manufacturing operations. Basic machine and assembly operations need to be identified, as well as whether any of these operations would be subcontracted and to whom.

• Raw materials. The raw materials needed and suppliers’ names, addresses, and costs should be determined.

• Equipment. The equipment needed should be listed, with its cost and whether it will be purchased or leased.

• Labor skills. Each unique skill needed, the number of personnel required for each skill, pay rate, and an assessment of where and how these skills will be obtained should be determined.

• Space. The total amount of space needed should be determined, including whether the

Chapter 07 - The Business Plan: Creating and Starting the Venture

space will be owned or leased.

• Overhead. Each item needed to support manufacturing such as tools, supplies, utilities, and salaries should be determined.

Difficulty: Medium/Hard depending on number of points required and supporting detail. p.190-191

86. Explain the purpose and content of the executive summary of the business plan.

It is 2-3 pages in length and should highlight in a concise and persuasive manner the key points of the business plan including:

What is the business concept or model?

How is this business concept or model unique?

Who are the individuals starting this business?

How will they make money and how much? An exit strategy (when appropriate).

Key supportive evidence (key contracts obtained for example or individuals involved).

Difficulty: Medium p. 194-195

87. Identify and explain, give examples when appropriate, of key areas that should be investigated when conducting an environmental analysis.

Economy. The entrepreneur should consider trends in the GNP, unemployment by geographic area, disposable income, and so on.

Culture. An evaluation of cultural changes may consider shifts in the population by demographics, for example, the impact of the baby boomers or the growing elderly population. Shifts in attitudes, such as “Buy American,” or trends in safety, health, and nutrition, as well as concern for the environment, may all have an impact on the entrepreneur’s business plan. Technology. Advances in technology are difficult to predict. However, the entrepreneur should consider potential technological developments determined from resources committed by major industries or the U.S. government. Being in a market that is rapidly changing due to technological development will require the entrepreneur to make careful short-term marketing decisions as well as to be prepared with contingency plans given any new technological developments that may affect his or her product or service.

Legal concerns. There are many important legal issues in starting a new venture; these were discussed in Chapter 6. The entrepreneur should be prepared for any future legislation that may affect the product or service, channel of distribution, price, or promotion strategy. The deregulation of prices, restrictions on media advertising (e.g., ban on cigarette ads or requirements for advertising to children), and safety regulations affecting the product or packaging are examples of legal restrictions that can affect any marketing program.

Difficulty: Medium p.195-196

88.Business plan progress can and should be measured throughout the year. Discuss three controls that help track progress. (Students can discuss any 3 of the following six)

A. Inventory control. By controlling inventory, the firm can ensure maximum service to the customer. The faster the firm gets back its investment in raw materials and finished goods, the faster that capital can be reinvested to meet additional customer needs.

B. Production control. Compare the cost figures estimated in the business plan with day-to-day operation costs. This will help to control machine time, worker hours, process time, delaytime, and downtime cost.

C. Quality control. This will depend on the type of production system but is designed to make sure that the product performs satisfactorily.

D. Sales control. Information on units, dollars, specific products sold, price of sales, meeting of delivery dates, and credit terms is useful to get a good perspective of the sales of the new venture. In addition, an effective collections system for accounts receivable should be set up to avoid aging of accounts and bad debts.

E. Disbursements. The new venture should control the amount of money paid out. All bills should be reviewed to determine how much is being disbursed and for what purpose.

F. Web site control. With more and more sales being supported or garnered from a company's Web site, it is very important to continually evaluate the Web site to ascertain its effectiveness in meeting the goals and objectives of the plan. There are many services and software packages available to assist the entrepreneur in this process.

Answer will vary.

Difficulty: Medium p.203-204

89. Identify the most common reasons why business plans fail.

A. Goals set by the entrepreneur are unreasonable.

B. Objectives are not measurable.

C. The entrepreneur has not made a total commitment to the business or to the family.

D. The entrepreneur has no experience in the planned business.

E. The entrepreneur has no sense of potential threats or weaknesses to the business.

F. No customer need was established for the proposed product or service.

Answer will vary.

Difficulty: Medium p.204