Chapter 7 The Business Plan: Creating and Starting the Venture

True/False Questions

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

Answer: True Page: 199 Difficulty: Easy

2. The business plan addresses both short term and long term decision making.

Answer: True Page: 199 Difficulty: Easy

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

Answer: False Page: 200 Difficulty: Medium

4. The business plan is a private document and should not be read by employees and
customers.

Answer: False Page: 201 Difficulty: Medium

5. 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.

Answer: False Page: 201 Difficulty: Medium

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

Answer: True Page: 201 Difficulty: Easy

7. 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.

Answer: False Page: 202 Difficulty: Medium

8. The business plan serves as an important tool in helping to obtain financing.

Answer: True Page: 202 Difficulty: Easy

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

Answer: False Page: 202 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

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

Answer: True Page: 203 Difficulty: Medium

11. In preparing the business plan, entrepreneurs can provide their own perspective and
need not consider the needs of external sources.

Answer: False Page: 203 Difficulty: Medium

12. A quick feasibility study should be conducted before preparing the business plan to
uncover possible barriers to success.

Answer: True Page: 204 Difficulty: Medium

13. 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.

Answer: False Page: 205 Difficulty: Hard

14. Most entrepreneurs have difficulty with gathering market information and do not often
know where to begin.

Answer: True Page: 205 Difficulty: Medium

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

Answer: True Page: 208 Difficulty: Medium

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

Answer: True Page: 208 Difficulty: Easy

17. Pro forma financial statements should be prepared monthly for the first year of the
venture.

Answer: True Page: 208 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

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

Answer: False Page: 208 Difficulty: Medium

19. Newsgroups are too closely controlled by competitors to be useful for information
gathering.

Answer: False Page: 209 Difficulty: Medium

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

Answer: False Page: 211 Difficulty: Medium

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

Answer: False Page: 212 Difficulty: Medium

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

Answer: True Page: 212 Difficulty: Medium

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

Answer: False Page: 212 Difficulty: Easy

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

Answer: False Page: 213-214 Difficulty: Medium

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

Answer: True Page: 218 Difficulty: Medium

26. Letters from customers, distributors, or subcontractors are examples of information

that should be included in the executive summary of a business plan.

Answer: False Page: 219 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

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

Answer: True Page: 220 Difficulty: Easy

28. Bankers agree that most business failures are due to the entrepreneur's inability to plan
effectively.

Answer: True Page: 220 Difficulty: Medium

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

Answer: False Page: 220 Difficulty: Medium

Multiple Choice Questions

30. 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.

Answer: A Page: 199 Difficulty: Medium

31. Which of the following interested parties should not have access to the venture's
business plan?
A) Suppliers
B) Lenders
C) Investors
D) Competitors

Answer: D Page: 199 Difficulty: Easy

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

A) the target audience.
B) the experience of the entrepreneur.
C) the size and scope of the new venture.
D) the amount of capital needed.

Answer: C Page: 201 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

33. 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.

Answer: B Page: 202 Difficulty: Medium

34. When evaluating business plans _________ are primarily concerned with the four Cs
of credit.
A) investors
B) lenders
C) vendors
D) employees

Answer: B Page: 202 Difficulty: Medium

35. 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.

Answer: C Page: 203 Difficulty: Medium

36. Investors often place more emphasis on the entrepreneur’s _________ than lenders do.
A) experience
B) character
C) financial records
D) personal viewpoint

Answer: B Page: 203 Difficulty: Medium

37. 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.

Answer: B Page: 204 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

38. 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.

Answer: C Page: 205 Difficulty: Medium

39. 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.

Answer: B Page: 208 Difficulty: Medium

40. Groups of Internet visitors who share opinions and have similar interests are called:
A) page groups.
B) newsgroups.
C) library sources.
D) news homes.

Answer: B Page: 209 Difficulty: Medium

41. 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.

Answer: A Page: 209-210 Difficulty: Medium

42. The executive summary section should:

A) be prepared before the total plan is written.
B) highlight key financial milestones that have been achieved.
C) be about two to three pages in length.
D) try to summarize every section of the plan.

Answer: C Page: 212 Difficulty: Easy

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Chapter 7 The Business Plan: Creating and Starting the Venture

43. 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) environmental and industry analysis.
D) executive summary.

Answer: C Page: 212 Difficulty: Medium

44. 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.

Answer: B Page: 213-214 Difficulty: Hard

45. 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

Answer: C Page: 215 Difficulty: Easy

46. 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) production plan.
C) operational plan.
D) executive summary.

Answer: C Page: 216 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

47. Distribution, pricing, and promotion of the product are discussed in which section of
the plan?
A) Marketing
B) Production
C) Merchandising
D) Organization

Answer: A Page: 217 Difficulty: Medium

48. 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.

Answer: D Page: 218 Difficulty: Medium

49. 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

Answer: C Page: 219 Difficulty: Easy

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

A) through the first year of operations.
B) through the distribution process.
C) in the financing process.
D) in case of a change in ownership.

Answer: A Page: 219 Difficulty: Medium

51. 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.

Answer: A Page: 220 Difficulty: Medium

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Chapter 7 The Business Plan: Creating and Starting the Venture

52. By controlling ___________, the firm can ensure maximum service to the customer.
A) production
B) sales
C) inventory
D) costs

Answer: C Page: 221 Difficulty: Medium

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