BA109 Chapter 4 – Practice Exam – Flashcards

T/F 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 two pages.

T/F The executive summary serves as the thesis statement for the entire business plan.

T/F The higher a small business scores on the 5 C’s of credit, the greater its chances will be of receiving a loan.

T/F 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.

T/F An entrepreneur should prepare a single set of “most likely” financial forecasts for one year into the future as part of the business plan.

T/F The plan of operation section of the business plan should address how the business plans to retain key managers and employees.

T/F After presenting the business plan to a group of potential lenders and investors, an entrepreneur should sit back and wait to hear from those who might be interested in the venture.

T/F The most common reasons banks give for rejecting small business loan applications are undercapitalization and too much debt.

T/F 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.

T/F Capital requirements, estimate earnings, and return on investment are three aspects of the financial feasibility analysis.

T/F Because the entrepreneur is the driving force behind a business idea, he or she should also be the driving force behind the business plan.

T/F The loan proposal portion of the business plan should include a realistic timetable for repayment or for investors to exit.

________ are broad, long-range statements of what a company plans to achieve in the future that guide its overall direction and addresses the question, “Why am I in business?”

T/F Before presenting a business plan to potential lenders and investors, an entrepreneur must be well informed and well prepared.

T/F The competitive test that a business plan must pass in order 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.

T/F The “C” of the 5 C’s of Credit that is synonymous with cash flow is capital.

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.

T/F In a business plan, both company goals and objectives should relate to the company’s mission.

Proving that a profitable market exists involves:

Which of the following is true about the preparation of a business plan?

A synonym for capacity is:

The higher a small business scores on the 5 C’s of credit, the greater its chances will be of receiving a loan.

A business plan that fails to assess a company’s competitors realistically makes the entrepreneur appear to be poorly prepared.

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.

The second essential purpose for creating a business plan is:

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.

The wise entrepreneur will indicate that there is no real competition for his new business venture, thereby increasing the likelihood that he will gain more interested investors.

The primary purpose of a business plan is to:

An explanation of how the product will be distributed is contained within the ________ section of the business plan.

Potential lenders and investors expect entrepreneurs to exaggerate the truth in their business plans, so telling the truth in the plan is really not important.

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.

The section that describes “how to get there” and describes a competitive edge that sets the business apart is referred to as the:

One form of primary research is:

The criteria lenders and investors use to evaluate the credit worthiness of entrepreneurs that are seeking financing-including capital, capacity, collateral, character, and conditions-are referred to as:

A product or service feasibility analysis determines the degree to which a product or service idea appeals to potential customers and identifies the necessary resources.

Generally, an industry is more attractive when quality substitute products are not readily available, the prices of substitute products are higher, and buyers’ costs of switching products is high.

Ideally, a business plan should range from ________ pages in length.

A ________ is a descriptive fact about a product or service; a ________ is what the customer gains from that characteristic.

Because the entrepreneur is the driving force behind a business idea, he or she should also be the driving force behind the business plan.

Which of the following is true regarding the process of building a business plan?

An entrepreneur should prepare a single set of “most likely” financial forecasts for one year into the future as part of the business plan.

In a business plan, both company goals and objectives should relate to the company’s mission.

The strongest of the five forces in most industries is:

The ________ highlights significant financial and operational events in the company’s life and should concentrate on the company’s accomplishments.

When describing their products and services in their business plans, entrepreneurs must remember that customers buy the benefits from products and services, not the features.

Proving that a profitable market exists involves:

The loan proposal section of a business plan should include all but which of the following?

Switching costs, the number of buyers, and if the items represent a relatively small portion of the cost of finished products are key considerations regarding the:

Issues such as market size, growth trends, ease of market entry and exit, the presence of cyclical or seasonal sales trends, and the competitive dynamics of an industry appear in the ________ section of the business plan.

________ are broad, long-range statements of what a company plans to achieve in the future that guide its overall direction and addresses the question, “Why am I in business?”

Primary research is information that has already been complied and is available for use, often at very reasonable costs or sometimes at no cost to the entrepreneur.

Essential pieces of information for potential lenders and investors include the assumptions the entrepreneur uses to derive the financial forecasts and projections in the business plan.

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.

To be meaningful, an objective must include a time frame for achievement.

The company history section of the business plan typically includes:

When formulating a marketing strategy, small companies usually are most successful when they:

The focus of the competitor analysis section of the business plan is on:

A table of contents that allows lenders to navigate a business plan easily is an important element of any business plan.

Porter’s five forces model assesses industry attractiveness by surveying these five factors:

The business strategy section of the business plan addresses the question of how the entrepreneur plans to achieve the mission, goals, and objectives he has established for his business venture.

After presenting her business plan to a group of potential lenders and investors, an entrepreneur should:

A feasibility analysis is the process of determining whether an entrepreneur’s idea is a viable foundation for creating a successful business.

The competitive test that a business plan must pass in order 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.

The financial feasibility analysis takes these aspects into consideration:

________ are short-term, specific targets which are attainable, measurable, and controllable.

To make a business plan more attractive, an entrepreneur should include a potential exit strategy as a way to “cash out” for investors.

Products or services that may be sought as alternative solutions-such as purchasing tax planning software rather than paying a CPA to assist with preparing your taxes-are referred to as:

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.

Before presenting a business plan to potential lenders and investors, an entrepreneur must be well informed and well prepared.

Identifying a specific target market is not an essential part of creating a solid business plan for a small company.

The reality test that a business plan must pass in order 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

The most common reason banks give for rejecting small business loan applications is the entrepreneur’s poor credit history.

Before putting their money into a business idea, potential lenders and investors:

Because gathering information on competitors’ products or services, strategies, and market share is so difficult, most lenders and investors see the competitor analysis section of the business plan as optional.

The most common reasons banks give for rejecting small business loan applications are undercapitalization and too much debt.

________ is an entrepreneur’s best insurance against launching a business destined to fail or mismanaging a potentially successful company.

A well-prepared business plan forces an entrepreneur to assess the venture’s chances of success more objectively.

The ________ test that a business plan must pass in order 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 solid business plan:

A business plan:

The “C” of the 5 C’s of Credit that is synonymous with cash flow is capital.

An analysis that determines the degree to which a product or service idea appeals to potential customers and identifies the resources necessary to produce the product or provide the service is referred to as:

Conducting ________ research involves collecting data firsthand and analyzing it while ________ research involves gathering data that has already been complied and is available.

The reality test that a business plan must pass in order 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.

When creating financial forecasts in a business plan for a proposed venture, an entrepreneur should:

The ________ is also known as the “elevator pitch” and is written last, but is included as the first part of the business plan; it should summarize all the relevant points in about two pages.

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.

The organization chart is described in which section of the business plan?

The force from the five forces model that considers economies of scale, initial capital requirements, cost advantages relevant to company size, and lack of brand loyalty is the:

A business plan is a written summary of:

Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the entrepreneur:

Objectives are short-term, specific targets that the small company plans to accomplish.

The five forces model would assess economies of scale factors in the “threat of new entrants” portion of the model.

The primary purpose of the five forces matrix is to:

A lender’s primary concern in granting a loan is reassurance that the applicant will repay it, whereas an investor’s primary concern is earning a satisfactory rate of return.

Defining the company’s target market, its characteristics, and its potential is part of which element of the business plan?

The loan proposal portion of the business plan should include a realistic timetable for repayment or for investors to exit.

The ________ acquaints lenders and investors with the nature of the business and the general goals and objectives of the company.

The most common reason cited by banks for rejecting small business loans is:

A benefit is a descriptive fact about a product or service; a feature is what the customer gains from that product or service benefit.

Porter’s five forces model only considers direct competitors within a single industry.

The company’s mission statement expresses in words the entrepreneur’s vision for what her company is and what it is to become.

An important goal of the “marketing strategy” section of the business plan is to prove that there is a real market for the proposed good or service.

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.

Although building a business plan does not guarantee an entrepreneur’s success, it does increase his or her chances of succeeding in business.

The quality of the entrepreneur’s business plan determines the first impression potential lenders and investors have of the company.

Which of the following questions will probably not be addressed in the marketing strategy section of the business plan?

Entrepreneurs should artificially inflate the amount of a loan request and expect the loan officer to “talk them down.”

Carly will be presenting her business plan to potential lenders and investors soon. Which of the following is not one of the suggested helpful tips for presenting the business plan?

Refer to the following information to answer the question(s) below:

Describing her company’s revolutionary design for a bottle cap, Kyoto says, “It has a special locking mechanism that you know is engaged when a red panel is showing through this little window on top of the cap. If you want to keep unauthorized hands-for instance, those of children-from opening the bottle, you engage the locking mechanism. Unlike other childproof caps, however, this design does not frustrate adults who might have arthritis and elderly people whose grip may not be as strong as it once was.”Removing the cap from the bottle in no time with just a few turns, Kyoto says, “They can open the cap quite easily by disengaging the locking mechanism this way … see? You get the safety of a childproof cap without the problems most adults have getting them off!”

The special locking mechanism on Kyoto’s new cap is a ________ of the product.

Spelling and grammatical errors in a business plan don’t really matter; potential lenders and investors look past them at the content of the plan.

The reality test that a business plan must pass in order to attract financing from lenders and investors involves proving:

The form of ownership under which a company is organized appears in which section of the business plan?

Capital requirements, estimate earnings, and return on investment are three aspects of the financial feasibility analysis.

The most effective business plans follow the “cookie cutter approach,” following the standard format most preferred by lenders and investors.

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.

The plan of operation of the company within the business plan should detail:

The entrepreneur’s “character” (even though it is an intangible factor) and the quality of the presentation are important factors in evaluating a loan proposal.

In the business strategy section of the business plan, the entrepreneur should explain to investors:

Low capital requirements, cost advantages that are not related to company size, and the lack of brand loyalty are considerations regarding the:

The primary purpose of building a business plan is to raise capital.

The executive summary section of the business plan:

The executive summary section of the business plan:

The competitive test that a business plan must pass in order to attract financing from lenders and investors involves proving:

The value test that a business must pass in order 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.

The most important factor in the success of a business venture is the quality of its management, and financial officers and investors weigh heavily the ability and experience of the firm’s managers in their financing decisions.

The value test that a business plan must pass in order to attract financing from lenders and investors involves proving:

Most loans banks make to startup businesses are secured not by collateral but by the character of the entrepreneur.