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Chapter 07 - The Business Plan: Creating and Starting the Venture
Entrepreneurship 10th Edition Hisrich

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Chapter 07
The Business Plan: Creating and Starting the Venture
True / False Questions
1. (p. 181) Steve Hafner founded Orbitz travel before founding Kayak a company that allows the
user to view opportunities from multiple travel sites such as Orbitz, Expedia, and Priceline.
TRUE
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Difficulty: Medium
2. (p. 182) Planning the new venture is a process that never ends.
TRUE

Difficulty: Easy
3. (p. 183) The business plan addresses only short term decision making.
FALSE

Difficulty: Easy
7-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
4. (p. 184) To maintain objectivity, the business plan should not be written by the entrepreneur.
FALSE

Difficulty: Medium
7-2
5. (p. 184) 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.
TRUE

Difficulty: Easy
6. (p. 184) In writing the business plan an entrepreneur should consider four perspectives: the
investor, the customer, the employees and themselves.
FALSE

Difficulty: Medium
7. (p. 185) The depth and detail in the business plan depend on the size and scope of the
proposed new venture.
TRUE

Difficulty: Medium
8. (p. 185) The business plan is a private document and should not be read by employees and
customers.
FALSE

Difficulty: Medium
9. (p. 185) 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.
FALSE

Difficulty: Medium
7-3
10. (p. 185) The process of writing the business plan provides a self-assessment for the
entrepreneur.
TRUE

Difficulty: Easy
11. (p. 186) 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.
FALSE

Difficulty: Medium
12. (p. 186) The business plan does not help an entrepreneur to obtain financing.
FALSE

Difficulty: Easy
13. (p. 186) The four Cs of credit are computers, capital, compromise, and collateral.
FALSE

Difficulty: Medium
14. (p. 186) Investors often spend a lot of time conducting background checks.
TRUE

Difficulty: Medium
7-4
15. (p. 187) Venture capitalists demand high rates of return for their investment in the new
venture.
TRUE

Difficulty: Medium
16. (p. 188) In preparing the business plan, entrepreneurs can provide their own perspective and
should consider the needs of external sources.
TRUE

Difficulty: Medium
17. (p. 188) A quick feasibility study should be conducted before preparing the business plan to
uncover possible barriers to success.
TRUE

Difficulty: Medium
18. (p. 189) 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.
FALSE

Difficulty: Easy
19. (p. 190) 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.
FALSE

Difficulty: Hard
7-5
20. (p. 190) Most entrepreneurs have little difficulty with gathering market information.
FALSE

Difficulty: Medium
21. (p. 191) Standard & Poor's and Bloomberg are good sources of industry and market data.
TRUE

Difficulty: Hard
22. (p. 193) When gathering financial information, the entrepreneur should develop a budget that
includes expected sales and expense figures for the first year.
TRUE

Difficulty: Medium
23. (p. 193) To determine the figures in the budget, the entrepreneur should identify benchmarks
or norms in the industry.
TRUE

Difficulty: Easy
24. (p. 193) Pro forma financial statements should be prepared semi-monthly for the first year of
the venture.
FALSE

Difficulty: Medium
7-6
25. (p. 193) Revenue sources such as sales and any externally available funds should be included
in the budget.
TRUE

Difficulty: Medium
26. (p. 194) In 2012 online retail sales increased by 15% over sales in 2011.
TRUE

Difficulty: Hard
27. (p. 194) European online retail sales are expected to continue to grow by about 10% each
year until 2018.
FALSE

Difficulty: Medium
28. (p. 194) The Internet is a useful tool to access information but is generally not a good vehicle
for marketing goods and services.
FALSE

Difficulty: Medium
29. (p. 194) Facebook is a good source of market information on competitors.

TRUE

Difficulty: Easy
7-7
30. (p. 195) The executive summary section of the business plan should be written first, before
other sections are developed.
FALSE

Difficulty: Medium
31. (p. 196) The introductory page of the business plan should contain the amount of financing
needed.
TRUE

Difficulty: Medium
32. (p. 197) An evaluation of cultural changes is irrelevant to the venture and should not be
included in the business plan.
FALSE

Difficulty: Medium
33. (p. 197) The executive summary section is only meant to highlight key factors and motivate
the person holding the plan to read it in its entirety.
TRUE

Difficulty: Medium
34. (p. 197) The entrepreneur need not concentrate on environmental analysis since most of the
external factors are generally uncontrollable.
FALSE

Difficulty: Easy
7-8
35. (p. 197) Discussing an exit strategy in the executive summary is not a good idea under any
circumstances.
FALSE

Difficulty: Medium
36. (p. 201) If a venture is not a manufacturing firm, an operations plan is not necessary.
FALSE

Difficulty: Medium
37. (p. 202) The organizational plan section of the business plan should describe the venture's
form of ownership.
TRUE

Difficulty: Medium
38. (p. 203) Since bills have to be paid at different times of the year, cash flow projections
should be presented weekly.
FALSE

Difficulty: Easy
39. (p. 204) Letters from customers, distributors, or subcontractors are examples of information
that should be included in the executive summary of a business plan.
FALSE

Difficulty: Medium
7-9
40. (p. 205) Bankers agree that most business failures are due to the entrepreneur's inability to
obtain financing.
FALSE

Difficulty: Medium
41. (p. 205) Typically business plan projections are made in a 36-month schedule.
FALSE

Difficulty: Medium
Multiple Choice Questions
42. (p. 181-182) Which of the following is not true about Steve Hafner featured in the opening
profile of chapter 7?
A. Graduated from Dartmouth College
B. Founded Expedia early in his career
C. Worked for Boston Consulting Group after completing his Masters Degree
D. Founded Kayak Corporation

Difficulty: Hard
43. (p. 183) 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
7-10
44. (p. 185) 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
45. (p. 184) 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
46. (p. 185) 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
7-11
47. (p. 185) ___________ 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
48. (p. 186) 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
49. (p. 186) When evaluating business plans _________ are primarily concerned with the four
Cs of credit.
A. investors
B. employees
C. vendors
D. lenders

Difficulty: Medium
7-12
50. (p. 186) Investors often place more emphasis on the entrepreneur's _________ than lenders
do.
A. character
B. experience
C. financial records
D. personal viewpoint

Difficulty: Medium
51. (p. 187) 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
52. (p. 190) 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
7-13
53. (p. 191) _____________ 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
54. (p. 191) 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
55. (p. 191) 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
7-14
56. (p. 191) Which source of financial information is a compilation of 276,000 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
57. (p. 192) 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
58. (p. 191) 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
59. (p. 193) 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
7-15
60. (p. 196) 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
61. (p. 196) 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
62. (p. 196) 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
63. (p. 197) 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
7-16
64. (p. 197) 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
65. (p. 197-198) 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
66. (p. 199) 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
7-17
67. (p. 200) 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
68. (p. 201) 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
69. (p. 201-202) 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
7-18
70. (p. 202) 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
71. (p. 202) Distribution, pricing, and promotion of the product are discussed in which section of
the plan?
A. Marketing
B. Production
C. Merchandising
D. Organization

Difficulty: Medium
72. (p. 202) 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
7-19
73. (p. 203) _______ 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
74. (p. 203) 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
75. (p. 204) 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
76. (p. 205) 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
7-20
77. (p. 205) By controlling __________, the firm can ensure maximum service to the customer.
A. production
B. sales
C. costs
D. inventory

Difficulty: Medium
78. (p. 205) ______ 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
79. (p. 206) 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
7-21
Essay Questions
80. (p. 184) Identify 5 of the 9 skill areas an entrepreneur should review in order to determine
whether or 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
81. (p. 190) 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
7-22
82. (p. 191) 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
83. (p. 192-193) 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 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
7-23
84. (p. 196-197) 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
85. (p. 197-198) 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
7-24
86. (p. 205-206) 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, delay
time, 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. Website control. With more and more sales being supported or garnered from a company's
Website, it is very important to continually evaluate the Website 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
87. (p. 206) 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
7-25

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

Entrepreneurship 10th Edition Hisrich

True / False Questions

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29. (p. 194) Facebook is a good source of market information on competitors.

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Multiple Choice Questions

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43. (p. 183) Which of the following statements is(are) true?

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