Entrepreneurial Small Business 3rd Edition Katz Test Bank

Entrepreneurial Small Business 3rd
Edition Katz Test Bank

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Chapter 08 - Business Plans: Seeing Audiences and Your Business Clearly
Chapter 08
Business Plans: Seeing Audiences and Your Business Clearly
True / False Questions
1. One circumstance under which creating a business plan is absolutely necessary is when
outsiders accept it.
True False
2. The primary concern of joint venture partners is the amount scheduled for returns.
True False
3. If you need outside support to get a business going, you do not need to develop a business
plan since the outside support will take care of it.
True False
4. The five types of business planning presentations are vision, mission, goals, objectives, and
business plans.
True False
5. The elevator pitch is more like a sales pitch and should be between 20-50 words.
True False
6. Executive summaries are written in a formal style, suitable for investors, bankers, and
lawyers to read.
True False
7. A classic business plan contains a maximum of 20 pages but a more modern plan requires
50-60 pages.
True False
8-1
8. A cover letter is not required when you send a full business plan to someone, but it is
required with a mission.
True False
9. In the closing paragraph of the cover letter, you describe the current situation of the
company and explain what you are seeking from the recipient.
True False
10. The last part of the company background describes its business model.
True False
11. The market section of the business plan talks about your employees - who they are and
what they like.
True False
12. A major organizational asset of a business is its location.

True False
13. There are two parts to the financial section of a business plan: critical risks and the deal
being offered to investors.
True False
14. For an existing business, the financial section should report five-year projections and not
the past year's since future progress is what bankers lend you money for.
True False
8-2
15. When your product or service is truly new to everyone, it is considered a pioneering
business.
True False
16. Screening plans give the basic overview of the firm and detailed look at the financials.
True False
17. An informational plan focuses on the market and operationalization of a new invention.
True False
18. The only type of plan that adds material to a full business plan is the marketing plan.
True False
19. The conversion rate is also called the hit rate.

True False
20. Typically, the business plan presentation follows the content of the business plan.
True False
Multiple Choice Questions
21. A document designed to detail the major characteristics of a firm is called a(n)
A. mission statement.
B. marketing plan.
C. executive summary.
D. business plan.
8-3
22. The extent to which a small business is taken for granted, accepted, or treated as viable by
organizations or people outside the small business is referred to as
A. tagline.
B. external legitimacy.
C. test marketing.
D. internal understanding.
23. Which of the following is NOT a business plan concern of family and friend investors?
A. Competitive advantage
B. Amounts and schedules for returns
C. Funds use
D. Stability of firm
24. Which of the following represents a business plan concern of silent partners/angel
investors?
B. Growth rate
C. Asset/collateral base
D. Benefit
25. _____ represents a business plan concern of joint venture partners.

A. Amounts and schedules of returns
B. Cash flow and cash cycle
C. Intellectual property protection
26. Which of the following is NOT a business plan concern of bankers?

A. Cash flow and cash cycle
B. Asset/collateral base
C. Long-term prospects
D. Monitoring compliance
8-4
27. All of the following are business plan concerns of potential customers EXCEPT
A. amounts and schedules for returns.
B. responsiveness to customers.
C. benefits.
D. competitive advantage.
28. Which of the following is a business plan concern of key employees in a business?
A. Intellectual property protection
B. Stability of firm
C. Monitoring compliance
D. Asset/collateral base
29. There are two circumstances under which creating a business plan is absolutely necessary:
(1) _____ and (2) _____.
A. when outsiders expect it; for internal understanding
B. for government requirement; for investor demands
C. for stakeholders; for stockholders
D. when family is involved; for friends' information
30. The extent to which employees, investors, and family members involve in the business,
know the business's purpose and operation, is called
A. external legitimacy.
B. test marketing.
C. internal understanding.
D. angel investing.
31. Which of the following statements about business plans is false?

A. If you are seeking a banker, investor, or partner, a business plan is absolutely essential.
B. If you are trying to run your business in an ambitious way, a business plan is vitally
important.
C. Typically, the higher-performing firms in any industry tend to be those who engage in
planning.
D. Having a business plan guarantees higher profits.
8-5
32. The business planning presentation types include all of the following EXCEPT
A. mission.
B. annual objectives.
C. elevator pitch.
D. executive summaries.
33. The length of a vision statement should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.
34. Which of the following is perhaps a firm's most important single idea held by the owner
and employees?
A. Vision statement
B. Executive summary
C. Mission statement
D. Elevator pitch
35. The length of an executive summary should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.
36. A tagline that expresses the fundamental idea or goal of the firm is called its
A. vision statement.
B. executive summary.
C. mission statement.
D. elevator pitch.
8-6
37. All of the following concern taglines EXCEPT

A. they are a good way to present vision statements, as they are brief and memorable.
B. they talk in terms of what will make a difference for the customer or the industry.
C. it expresses the fundamental idea or goal of the firm.
D. it can serve as the company's vision statement.
38. A memorable catchphrase that captures the key idea of a business, its service, product, or
customer is called a(n)
B. tagline.
D. business plan.
39. The _____ describes the firm's goals and competitive advantages.
A. vision statement
B. executive summary
C. mission statement
D. elevator pitch
40. All of the following observations hold true of mission statements EXCEPT
A. they are an action-oriented description of your business.
B. they rarely discuss profits, but often mention the entry wedge that follows from the firm's
strategy.
C. they might include the major competitive advantages of the firm, and its position in the
industry.
D. they are best when they are simple, short, and direct.
41. A 30-second action-oriented description of a business designed to sell the idea of the
business to another is called a(n)
B. mission statement.
D. elevator pitch.
8-7
42. Which of the following statements about an elevator pitch is true?

A. It is shorter than a vision statement or tagline.
B. It consistently leads to specific businesses.
C. The idea of the pitch is that you are alone with a prospective customer for the length of an
elevator ride.
D. The pitch ends with where the business is headed.
43. While writing the elevator pitch, including something about your product or service that
people would remember and take to heart relates to the
A. hook of the plan.
B. purpose of the plan.
C. delivery of the plan.
D. position of the plan.
44. Which of the following is NOT a success factor of an effective elevator pitch?
A. Hook
B. Time
C. What
D. Delivery
45. A one- to two-page overview of the business, its business model, market, expectations,
and immediate goals represents a(n)
A. executive summary.
B. vision statement.
D. elevator pitch.
46. Which of the following is NOT a topic addressed in the executive summary?
A. Competitive advantages
B. Product
C. Mission
D. Finances
8-8
47. Which of the following statements about executive summaries is true?

A. Typically, they remain the least popular item to send people who ask about your business.
B. The order for the topics in an executive summary is fixed.
C. They do not give as much information about the business as the vision or mission
statements do.
D. They form the basis for additional discussion when someone asks for more detail.
48. Identify the correct statement about the 5-M Model.

A. It is typical to have multiple measures, and they are typically given in qualitative form.
B. Mission statements give the firm's major business goal, which can be stated quantitatively
or qualitatively, but always with a time period.
C. Methods typically involve identifying quantitatively stated strategic achievements which
would prove you have done what you set out to do as a business.
D. Mechanics are generally given as one-paragraph project descriptions.
49. The classic business plan contains _____ pages that include financials and appendixes.
A. 15
B. 25
C. 60
D. 40
50. A one-page document on a letterhead that introduces the business plan and owner and
indicates why the recipient is being asked to read the plan is called a(n)
B. cover letter.
C. appendix.
D. title page.
51. Where the type of business is well established, what is the appropriate size for a business
plan?
A. 10 pages
B. 20 pages
C. 25 pages
D. 40 pages
8-9
52. Which of the following is NOT a major component of a business plan?

A. Company
B. Markets
C. Organization
D. Regulations
53. In the first paragraph of the cover letter, you

A. explain your company in detail.
B. describe the current situation of your company.
C. introduce yourself.
D. thank the reader for their consideration.
54. In which paragraph of the cover letter do you thank the recipient for his/her
consideration?
A. First
B. Second
C. Third
D. Fourth
55. A product or service that is kept as a trade secret or is protected legally using patents,
trademarks, copyright, or service mark is called a
A. tagline.
B. proprietary technology.
C. pioneering business.
D. test marketing.
56. The market section talks about your

A. employees.
B. stockholders.
C. customers.
D. family.
8-10
57. The market refers to the

A. total population of people or firms to whom you plan to sell.
B. geographic locations where you open business.
C. national boundaries where you operate.
D. local area where you recruit people for jobs.
58. A good marketing strategy focuses on all of the following ideas EXCEPT
A. the overall strategy your firm pursues in the market.
B. the sales plan.
C. the long-term competitive plan.
D. harvesting the business plan.
59. Which of the following is a supra-strategy?

A. Cost
B. Customization
C. Formula facilities
D. Differentiation
60. A "no-frills" strategy is an example of a

A. fragmented industry strategy.
B. generic strategy.
C. supra-strategy.
D. focus strategy.
61. _____ involves introducing your product to potential customers and taking orders for late
delivery.
A. R&D
B. Test marketing
C. Preselling
D. New entrant business
8-11
62. Which of the following refers to the part of a business that is focused on creating new
products or services and preparing new technologies, ideas, products or services for the firm's
market?
A. R&D
B. Test marketing
C. Preselling
63. Growth plans often talk about all of the following EXCEPT
A. longer-term partnerships to be sought.
B. new markets to be pursued.
C. ways to leverage the firm's assets.
D. the day-to-day specifics of how sales are achieved.
64. The legal form of business and the place where it is registered should be presented under
which section of the business plan?
A. Company
B. Market
C. Organization
D. Financials
65. Which of the following financial statements is NOT expected in the business plan?
A. Income statement
B. SEC filing statement
C. Balance sheet
D. Cash flow statement
66. For an existing business

A. income and cash flow are given monthly for the first year.
B. the tradition is to offer three years of data projections.
C. the financials offer two-year projections for the income, cash flow, and balance sheet.
D. the financials report the last five years of actual data.
8-12
67. What is the goal of appendixes?

A. To inform customers and partners about the firm and the product.
B. To establish an ongoing relationship with the listener.
C. To provide supporting information that helps detail the key selling points of your plan.
D. To sell customers and investors on the idea of the business and their need for it.
68. A firm whose product or service is new to the industries or is itself creating a new industry
is called
A. a new entrant business.
B. R&D.
C. test marketing.
D. a pioneering business.
69. When a firm sells its products in a limited area, for a limited time, it is called
A. an R&D venture.
B. a pioneering business.
C. test marketing.
D. a new entrant business.
70. A firm whose product or service is established elsewhere and is new to this market is
called
A. an R&D venture.
C. test marketing.
71. Which of the following gives the basic overview of a firm and a detailed look at the
financials?
A. Screening plan
B. Operational plan
C. Marketing plan
D. Investing plan
8-13
72. Which of the following is incorrect of screening plans?

A. The idea behind it is to give a basic overview of the firm and a detailed look at the
financials.
B. It usually consists of the cover letter, title page, executive summary, and financial sections
of the business plan.
C. Appendixes are included only when it is important to prove the viability of contracts.
D. It consists of company and organization sections.
73. Identify the business plan that typically consists of company and organization sections.
A. Idea plan
B. Informational plan
C. Operational plan
D. Invention plan
74. Which of the following business plans is also called a "mini-plan"?

A. Invention plan
B. Idea plan
C. Operational plan
D. Screening plan
75. Which of the following is NOT a special-purpose plan?

A. Screening plan
B. Key employer plan
C. Invention plan
D. Informational plan
76. A special form of informational plan posted on the Internet is the _____ Web site.
A. proof-of-concept
B. invention plan
C. operational plans
D. private placement memo
8-14
77. A key employee/partner plan is also referred to as all of the following EXCEPT
A. summary plan.
B. concept plan.
C. idea plan.
D. mini-plan.
78. These plans are designed to be used as working documents within a business.
A. Idea plans
B. Informational plans
C. Operational plans
D. Invention plans
79. All of the following pertain to a private placement memorandum EXCEPT

A. it is the official version of a business plan offered to potential investors.
B. it is a legal document, and should be drafted by a lawyer.
C. it is used to send your business plan to professional funding sources.
D. it builds on a business plan, using information about the company, products and services,
strategy and operations, and competition.
80. Which of the following is a business plan that provides information to potential
licensees?
A. Screening plan
B. Business plan
C. Invention plan
81. Which of the following is a business plan designed to be used internally for management
purposes?
A. Screening plan
C. Invention plan
D. Operational plan
8-15
82. Identify the specialized legal form of business plan crafted by lawyers for the purpose of
soliciting formal investments.
A. Concept plan
B. Private placement memorandum
C. Proof-of-concept plan
D. Mini-plan
83. Which of the following risks is NOT a common threat to business?

A. Understated numbers
B. Uncertain sales
C. Overlooked competition
D. Inadequate cushion
84. The _____ is the percentage of people who buy out of the total population of people you
approach.
A. base rate
B. hit rate
C. tagline rate
D. proof-of-concept rate
85. All of the following are key things an influential person looks for in your business plan
presentation EXCEPT
A. your passion for the business.
B. your expertise about the business and the plan.
C. how many others are already working with you.
D. how easy it would be to work with you.
8-16
Scenario: Connie's Corner Café

Having done the culinary classes at the local college, Connie has decided to explore the idea
of opening her own business, "Connie's Corner Café". She has found the ideal location next to
the college. However, it appears that Connie will have to get some outside investors or
bankers involved for the financial backing to get this venture off the ground. When she talked
to her local bank manager, Mr. Johnson, he immediately asked for Connie's business plan.
Connie knew she was in trouble because she didn't even know what a business plan looked
like.
86. Which of the following would represent Mr. Johnson's interest in Connie's business plan?
B. Growth rate
C. Competitive advantage
D. Amounts and schedules for returns
87. If Connie gets her family and friends involved as investors, which of the following would
be their concern or interest?
B. Growth rate
88. Connie shops are established businesses and so Connie's business plans could/should be
_____ pages of text.
A. 40
B. 10
C. 20
D. 25
8-17
89. Connie needs to know that all of the following are key components of a business plan she
should include EXCEPT
A. the market.
B. the organization.
C. the regulatory limitations.
D. the financials.
90. Connie should be aware of which of the following risks that may cause Mr. Johnson to
evaluate her plan negatively?
A. Most likely the numbers
B. Experiencing deficit
C. High hit rate for preselling
D. Adequate or high payback
Essay Questions
91. Identify at least two concerns of different business plan audiences.
92. Briefly describe the five types of business planning presentations.
8-18
93. Differentiate between the vision statement and the mission statement of business plan
presentation.
94. Describe executive summary including its utility and its topics.
95. Briefly summarize the 5-M Model of business planning.
96. Explain the mechanics of a cover letter.
8-19
97. What should the financial components of a business plan comprise of? Explain.
98. Identify and describe the four situations where the business plans need to provide different
focus.
99. Discuss the business plan risks that are common threats to businesses.
100. When you present your business plan to influential people, what are they looking for?
Explain.
8-20
Chapter 08 Business Plans: Seeing Audiences and Your Business Clearly

Answer Key
True / False Questions
1. (p. 214) One circumstance under which creating a business plan is absolutely necessary is
when outsiders accept it.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 08-1
2. (p. 214) The primary concern of joint venture partners is the amount scheduled for returns.
FALSE
AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
3. (p. 215) If you need outside support to get a business going, you do not need to develop a
business plan since the outside support will take care of it.
FALSE
AACSB: Analytic
Difficulty: Medium
8-21
4. (p. 215) The five types of business planning presentations are vision, mission, goals,
objectives, and business plans.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
5. (p. 217) The elevator pitch is more like a sales pitch and should be between 20-50 words.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
6. (p. 218) Executive summaries are written in a formal style, suitable for investors, bankers, and
lawyers to read.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
7. (p. 221) A classic business plan contains a maximum of 20 pages but a more modern plan
requires 50-60 pages.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-22
8. (p. 221-222) A cover letter is not required when you send a full business plan to someone, but it
is required with a mission.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
9. (p. 223) In the closing paragraph of the cover letter, you describe the current situation of the
company and explain what you are seeking from the recipient.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
10. (p. 224) The last part of the company background describes its business model.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
11. (p. 225) The market section of the business plan talks about your employees - who they are
and what they like.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-23
12. (p. 227) A major organizational asset of a business is its location.

TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
13. (p. 228) There are two parts to the financial section of a business plan: critical risks and the
deal being offered to investors.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
14. (p. 228) For an existing business, the financial section should report five-year projections and
not the past year's since future progress is what bankers lend you money for.
FALSE
AACSB: Analytic
Difficulty: Medium
15. (p. 230) When your product or service is truly new to everyone, it is considered a pioneering
business.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-24
16. (p. 231) Screening plans give the basic overview of the firm and detailed look at the
financials.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
17. (p. 231) An informational plan focuses on the market and operationalization of a new
invention.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
18. (p. 232) The only type of plan that adds material to a full business plan is the marketing
plan.
FALSE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
19. (p. 235) The conversion rate is also called the hit rate.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-25
20. (p. 237) Typically, the business plan presentation follows the content of the business plan.
TRUE
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Multiple Choice Questions
21. (p. 214) A document designed to detail the major characteristics of a firm is called a(n)
B. marketing plan.
D. business plan.
When you are serious about your business or when a lot of money of your own or someone
else's is at stake, creating a business plan is perhaps the most critical activity you can
undertake.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
22. (p. 214) The extent to which a small business is taken for granted, accepted, or treated as
viable by organizations or people outside the small business is referred to as
A. tagline.
B. external legitimacy.
C. test marketing.
D. internal understanding.
Creating a business plan is the acknowledged best way to build external legitimacy for your
firm.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-26
23. (p. 214) Which of the following is NOT a business plan concern of family and friend
investors?
B. Amounts and schedules for returns
C. Funds use
Business plan concerns of family and friend investors include amounts and schedules for
returns, stability of firm, and funds use and your investment (Refer Table 8.1).
AACSB: Analytic
Difficulty: Medium
24. (p. 214) Which of the following represents a business plan concern of silent partners/angel
investors?
B. Growth rate
C. Asset/collateral base
D. Benefit
Business plan concerns of silent partners/angel investors include growth rate, market, business
team, and amounts and schedules for returns (Refer Table 8.1).
AACSB: Analytic
Difficulty: Hard
8-27
25. (p. 214) _____ represents a business plan concern of joint venture partners.
A. Amounts and schedules of returns
B. Cash flow and cash cycle
C. Intellectual property protection
Business plan concerns of joint venture partners include fit between the firms, competitive
advantage, benefits, intellectual property protection, and R&D (Refer Table 8.1).
AACSB: Analytic
Difficulty: Hard
26. (p. 214) Which of the following is NOT a business plan concern of bankers?
B. Asset/collateral base
C. Long-term prospects
D. Monitoring compliance
Business plan concerns of bankers include cash flow and cash cycle, asset/collateral base, and
long-term prospects (Refer Table 8.1).
AACSB: Analytic
Difficulty: Medium
27. (p. 214) All of the following are business plan concerns of potential customers EXCEPT
A. amounts and schedules for returns.
B. responsiveness to customers.
C. benefits.
D. competitive advantage.
Business plan concerns of potential customers include service/product quality, benefits,

competitive advantage, and responsiveness to customers (Refer Table 8.1).
AACSB: Analytic
Difficulty: Hard
8-28
28. (p. 214) Which of the following is a business plan concern of key employees in a business?
A. Intellectual property protection
B. Stability of firm
C. Monitoring compliance
D. Asset/collateral base
Business plan concerns of key employees include Stability of firm, Growth (as applies to
increased opportunities within the firm), and long-term prospects (Refer Table 8.1).
AACSB: Analytic
Difficulty: Hard
29. (p. 214-215) There are two circumstances under which creating a business plan is absolutely
necessary: (1) _____ and (2) _____.
A. when outsiders expect it; for internal understanding
B. for government requirement; for investor demands
C. for stakeholders; for stockholders
D. when family is involved; for friends' information
There are two circumstances under which creating a business plan is absolutely necessary.
One is when outsiders expect it. The other circumstance under which a business plan is
needed is for internal understanding.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-29
30. (p. 215) The extent to which employees, investors, and family members involve in the
business, know the business's purpose and operation, is called
A. external legitimacy.
B. test marketing.
C. internal understanding.
D. angel investing.
Internal understanding is when you want to get all the aspects of the business clear in your
mind and the minds of others in the business, such as your partners or your key employees.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
31. (p. 215) Which of the following statements about business plans is false?
A. If you are seeking a banker, investor, or partner, a business plan is absolutely essential.
B. If you are trying to run your business in an ambitious way, a business plan is vitally
important.
C. Typically, the higher-performing firms in any industry tend to be those who engage in
planning.
D. Having a business plan guarantees higher profits.
While having a business plan does not guarantee higher profits, it is essential to qualify to be
considered by business professionals for investments, loans, or credit lines.
AACSB: Reflective Thinking

Difficulty: Medium
8-30
32. (p. 215) The business planning presentation types include all of the following EXCEPT
A. mission.
B. annual objectives.
C. elevator pitch.
D. executive summaries.
The five types of business planning presentations are (1) vision statements, (2) mission
statements, (3) elevator pitches, (4) executive summaries, and (5) business plans.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
33. (p. 216) The length of a vision statement should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.
The vision statement is a very simple 5-10 word sentence.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
34. (p. 216) Which of the following is perhaps a firm's most important single idea held by the
owner and employees?
A. Vision statement
B. Executive summary
C. Mission statement
D. Elevator pitch
The vision statement is a very simple 5-10 word sentence or a tagline that expresses the
fundamental idea or goal of the firm.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-31
35. (p. 216) The length of an executive summary should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.
The length of an executive summary should be 250-500 words (Refer Figure 8.1).
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
36. (p. 216) A tagline that expresses the fundamental idea or goal of the firm is called its
B. executive summary.
D. elevator pitch.
A firm's vision statement is perhaps its most important single idea held by the owner and
employees.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-32
37. (p. 216) All of the following concern taglines EXCEPT

A. they are a good way to present vision statements, as they are brief and memorable.
B. they talk in terms of what will make a difference for the customer or the industry.
C. it expresses the fundamental idea or goal of the firm.
D. it can serve as the company's vision statement.
The vision statement is a very simple 5-10 word sentence or better yet a tagline that expresses
the fundamental idea or goal of the firm. Taglines are a good way to present vision
statements, because a good tagline is brief and memorable. The tagline can also serve as the
company's vision statement.

Difficulty: Medium
38. (p. 216) A memorable catchphrase that captures the key idea of a business, its service,
product, or customer is called a(n)
B. tagline.
D. business plan.
A tagline expresses the fundamental idea or goal of the firm.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-33
39. (p. 216) The _____ describes the firm's goals and competitive advantages.
A. vision statement
B. executive summary
C. mission statement
D. elevator pitch
The mission statement takes the vision statement's description of the firm's goal and adds the
competitive advantage information developed as part of the firm's strategy.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
40. (p. 216-217) All of the following observations hold true of mission statements EXCEPT
A. they are an action-oriented description of your business.
B. they rarely discuss profits, but often mention the entry wedge that follows from the firm's
strategy.
C. they might include the major competitive advantages of the firm, and its position in the
industry.
D. they are best when they are simple, short, and direct.
An elevator pitch is an action-oriented description of your business.

Difficulty: Medium
8-34
41. (p. 217) A 30-second action-oriented description of a business designed to sell the idea of the
business to another is called a(n)
B. mission statement.
D. elevator pitch.
An elevator pitch is designed to open the door to a more in-depth dialogue.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
42. (p. 217-218) Which of the following statements about an elevator pitch is true?
A. It is shorter than a vision statement or tagline.
B. It consistently leads to specific businesses.
C. The idea of the pitch is that you are alone with a prospective customer for the length of an
elevator ride.
D. The pitch ends with where the business is headed.
An elevator pitch is an action-oriented description of your business that is somewhat longer

than a vision statement or tagline. Even when it doesn't lead to any specific business, this
information about your business should be memorable enough so that the listener can tell
others about your business. The pitch ends with where the business is now—seeking money
from seed investors.

Difficulty: Medium
8-35
43. (p. 218) While writing the elevator pitch, including something about your product or service
that people would remember and take to heart relates to the
A. hook of the plan.
B. purpose of the plan.
C. delivery of the plan.
D. position of the plan.
Elevator pitches have four success factors: the hook, the purpose, the what and where, and the
delivery.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
44. (p. 218) Which of the following is NOT a success factor of an effective elevator pitch?
A. Hook
B. Time
C. What
D. Delivery
Elevator pitches have four success factors: the hook, the purpose, the what and where, and the
delivery.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-36
45. (p. 218) A one- to two-page overview of the business, its business model, market,
expectations, and immediate goals represents a(n)
B. vision statement.
D. elevator pitch.
An executive summary is the key component of the written business plan because it is the one
element that nearly everyone will read first when they receive a plan.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
46. (p. 218-219) Which of the following is NOT a topic addressed in the executive summary?
A. Competitive advantages
B. Product
C. Mission
D. Finances
Executive summaries are usually organized in a series of short paragraphs, each with a
particular topic. These topics are: product, market, competitive advantages, management,
business, and finances.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-37
47. (p. 218-219) Which of the following statements about executive summaries is true?
A. Typically, they remain the least popular item to send people who ask about your business.
B. The order for the topics in an executive summary is fixed.
C. They do not give as much information about the business as the vision or mission
statements do.
D. They form the basis for additional discussion when someone asks for more detail.
Typically, executive summaries start out written, and they remain the most popular item to
send people who ask about your business. They give much more detail about the business
than the vision or mission statements or elevator pitch. The order for the topics in an
executive summary is not fixed.

Difficulty: Medium
48. (p. 220) Identify the correct statement about the 5-M Model.
A. It is typical to have multiple measures, and they are typically given in qualitative form.
B. Mission statements give the firm's major business goal, which can be stated quantitatively
or qualitatively, but always with a time period.
C. Methods typically involve identifying quantitatively stated strategic achievements which
would prove you have done what you set out to do as a business.
D. Mechanics are generally given as one-paragraph project descriptions.
It is typical to have multiple measures, and they are typically given in quantitative form.
Methods in this exercise typically involve identifying qualitatively stated strategic
achievements which would prove you have done what you set out to do as a business.
Mechanics are often given as one-line project descriptions.

Difficulty: Medium
8-38
49. (p. 221) The classic business plan contains _____ pages that include financials and
appendixes.
A. 15
B. 25
C. 60
D. 40
The full (or classic) business plan contains a maximum of 25 single-spaced pages of text and
15 pages of financials and appendixes.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
50. (p. 221) A one-page document on a letterhead that introduces the business plan and owner
and indicates why the recipient is being asked to read the plan is called a(n)
B. cover letter.
C. appendix.
D. title page.
A cover letter is typically the first written material someone sees about your business, so it
needs to look and sound just right.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-39
51. (p. 221) Where the type of business is well established, what is the appropriate size for a
business plan?
A. 10 pages
B. 20 pages
C. 25 pages
D. 40 pages
Where the type of business is well established, these simple business plans may require only
10 pages of text. Even so, the financial section remains its usual length, although the
appendixes may be sparse.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
52. (p. 222) Which of the following is NOT a major component of a business plan?
A. Company
B. Markets
C. Organization
D. Regulations
The major components of a business plan include cover letter, title page, table of contents,
executive summary, the company, the market, the organization, the financials, and the
appendixes (Refer Table 8.2).
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-40
53. (p. 223) In the first paragraph of the cover letter, you
A. explain your company in detail.
B. describe the current situation of your company.
C. introduce yourself.
D. thank the reader for their consideration.
In the first paragraph of the cover letter, you introduce yourself and your business (Refer Skill
Module 8.2).
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
54. (p. 223) In which paragraph of the cover letter do you thank the recipient for his/her
consideration?
A. First
B. Second
C. Third
D. Fourth
In the fourth paragraph of the cover letter, you thank the recipient for his or her consideration,
let the reader know you are available to answer any questions, and close with a mention of
your future action, such as a promise to contact the recipient within a week (Refer Skill
Module 8.2).
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-41
55. (p. 225) A product or service that is kept as a trade secret or is protected legally using
patents, trademarks, copyright, or service mark is called a
A. tagline.
B. proprietary technology.
C. pioneering business.
D. test marketing.
Proprietary technology is a product or service or an aspect of one that is kept as a trade secret
or is protected legally using patent, copyright, trademark, or service mark.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
56. (p. 225) The market section talks about your

A. employees.
B. stockholders.
C. customers.
D. family.
The market section of a business plan talks about your customers—who they are and what
they are like, who else is pursuing them, and how you plan to get or keep your customers.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
57. (p. 225) The market refers to the

A. total population of people or firms to whom you plan to sell.
B. geographic locations where you open business.
C. national boundaries where you operate.
D. local area where you recruit people for jobs.
The market refers to the total population of people or firms to whom you plan to sell.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-42
58. (p. 226) A good marketing strategy focuses on all of the following ideas EXCEPT
A. the overall strategy your firm pursues in the market.
B. the sales plan.
C. the long-term competitive plan.
D. harvesting the business plan.
A good marketing strategy section focuses on three ideas: (1) The overall strategy your firm
pursues in the market, (2) the sales plan that shows the specific ways you apply strategy to
secure sales from your customers, and (3) the longer-term competitive plan that shows how
you protect your firm from efforts of the competition to unseat you.

Difficulty: Hard
59. (p. 226) Which of the following is a supra-strategy?

A. Cost
B. Customization
C. Formula facilities
D. Differentiation
The overall strategy subsection discusses your generic strategy (differentiation, cost, focus) as
well as any supra-strategies (craftsmanship, customization, etc.) or fragmented industry
strategies (no-frills, formula facilities, etc.) you pursue.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-43
60. (p. 226) A "no-frills" strategy is an example of a

A. fragmented industry strategy.
B. generic strategy.
C. supra-strategy.
D. focus strategy.
Fragmented industry strategies include no-frills, formula facilities, etc.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
61. (p. 226) _____ involves introducing your product to potential customers and taking orders
for late delivery.
A. R&D
B. Test marketing
C. Preselling
The strongest sales plans talk positively about the results of pilot tests, preselling efforts, or
conventional sales already made.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-44
62. (p. 226) Which of the following refers to the part of a business that is focused on creating
new products or services and preparing new technologies, ideas, products or services for the
firm's market?
A. R&D
B. Test marketing
C. Preselling
Most business plans add a section on R&D or growth here to explain how they are working to
maintain an in-depth competitive advantage, with one or more additional generations of
products or services ready to be used, or quickly brought to market, in order to keep the
competition one generation behind your firm in meeting customer needs.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
63. (p. 226) Growth plans often talk about all of the following EXCEPT
A. longer-term partnerships to be sought.
B. new markets to be pursued.
C. ways to leverage the firm's assets.
D. the day-to-day specifics of how sales are achieved.
The sales plan addresses the day-to-day specifics of how sales are achieved.

Difficulty: Medium
8-45
64. (p. 226) The legal form of business and the place where it is registered should be presented
under which section of the business plan?
A. Company
B. Market
C. Organization
D. Financials
Legal and organization structures is a subsection of the organization that describe the legal
form of the business (LLC, LP, sole proprietorship, etc.) and where it is formally registered.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
65. (p. 228) Which of the following financial statements is NOT expected in the business plan?
A. Income statement
B. SEC filing statement
C. Balance sheet
D. Cash flow statement
The financial statements expected include: (1) income statements and its assumptions, (2)
cash flow and its assumptions, and (3) balance sheet and its assumptions.
AACSB: Financial Theories, Analysis, Reporting, And Markets

Bloom's: Knowledge
Difficulty: Medium
8-46
66. (p. 228) For an existing business

A. income and cash flow are given monthly for the first year.
B. the tradition is to offer three years of data projections.
C. the financials offer two-year projections for the income, cash flow, and balance sheet.
D. the financials report the last five years of actual data.
For an existing business, the financials report the last two years of actual data, and then offer
three-year projections for the income, cash flow, and balance sheet. For a start-up business,
the tradition is to offer three years of data projections.

Difficulty: Medium
67. (p. 229) What is the goal of appendixes?

A. To inform customers and partners about the firm and the product.
B. To establish an ongoing relationship with the listener.
C. To provide supporting information that helps detail the key selling points of your plan.
D. To sell customers and investors on the idea of the business and their need for it.
The goal of appendixes is to provide supporting information that helps detail or support the
key selling points of your plan.

Difficulty: Medium
8-47
68. (p. 230) A firm whose product or service is new to the industries or is itself creating a new
industry is called
A. a new entrant business.
B. R&D.
C. test marketing.
D. a pioneering business.
When your product or service is truly new to everyone, it is considered a pioneering business.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
69. (p. 230) When a firm sells its products in a limited area, for a limited time, it is called
A. an R&D venture.
C. test marketing.
Selling your product or service in a limited area, for a limited time is called test marketing.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
70. (p. 230) A firm whose product or service is established elsewhere and is new to this market is
called
A. an R&D venture.
C. test marketing.
When your product or service already exists but your firm is the first of its kind in your
market, it is considered a new entrant business.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-48
71. (p. 231) Which of the following gives the basic overview of a firm and a detailed look at the
financials?
A. Screening plan
B. Operational plan
C. Marketing plan
D. Investing plan
If you intend to send your plan to professional funding sources such as private banks,
investment clubs, or venture capital firms, it is common to send what is called a mini-plan or a
screening plan.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
72. (p. 231) Which of the following is incorrect of screening plans?

A. The idea behind it is to give a basic overview of the firm and a detailed look at the
financials.
B. It usually consists of the cover letter, title page, executive summary, and financial sections
of the business plan.
C. Appendixes are included only when it is important to prove the viability of contracts.
D. It consists of company and organization sections.
Informational plans typically consist of company and organization sections.

Difficulty: Medium
8-49
73. (p. 231) Identify the business plan that typically consists of company and organization
sections.
A. Idea plan
C. Operational plan
D. Invention plan
Informational plans give potential customers or suppliers information about the company and
its product or service.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
74. (p. 231) Which of the following business plans is also called a "mini-plan"?
A. Invention plan
B. Idea plan
C. Operational plan
D. Screening plan
screening plan.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-50
75. (p. 231-232) Which of the following is NOT a special-purpose plan?

A. Screening plan
B. Key employer plan
C. Invention plan
Option b should be key employee/partner plan.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
76. (p. 232) A special form of informational plan posted on the Internet is the _____ Web site.
A. proof-of-concept
B. invention plan
C. operational plans
D. private placement memo
The proof-of-concept Web site is an Internet-based type of business plan providing

information or demonstration of a product or service designed to solicit information on
customer interest.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
77. (p. 232) A key employee/partner plan is also referred to as all of the following EXCEPT
A. summary plan.
B. concept plan.
C. idea plan.
D. mini-plan.
A screening plan is also called a mini-plan.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-51
78. (p. 232) These plans are designed to be used as working documents within a business.
A. Idea plans
B. Informational plans
C. Operational plans
D. Invention plans
Operational plans are business plans designed to be used internally for management purposes.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
79. (p. 232) All of the following pertain to a private placement memorandum EXCEPT
A. it is the official version of a business plan offered to potential investors.
B. it is a legal document, and should be drafted by a lawyer.
C. it is used to send your business plan to professional funding sources.
D. it builds on a business plan, using information about the company, products and services,
strategy and operations, and competition.
screening plan.

Difficulty: Medium
8-52
80. (p. 232) Which of the following is a business plan that provides information to potential
licensees?
A. Screening plan
B. Business plan
C. Invention plan
An invention plan focuses on the market and operationalization of a new invention.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
81. (p. 232) Which of the following is a business plan designed to be used internally for
management purposes?
A. Screening plan
C. Invention plan
D. Operational plan
Operational plans are designed to be used as working documents within a business.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
82. (p. 232) Identify the specialized legal form of business plan crafted by lawyers for the
purpose of soliciting formal investments.
A. Concept plan
B. Private placement memorandum
C. Proof-of-concept plan
D. Mini-plan
PPMs are the official version of a business plan offered to potential investors.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-53
83. (p. 235) Which of the following risks is NOT a common threat to business?
A. Understated numbers
B. Uncertain sales
C. Overlooked competition
D. Inadequate cushion
Some of the risks that are common threats to businesses are overstated numbers, numbers that
are wrong, inadequate cushion, uncertain sales, overlooked competition, etc.

Difficulty: Medium
84. (p. 235) The _____ is the percentage of people who buy out of the total population of people
you approach.
A. base rate
B. hit rate
C. tagline rate
D. proof-of-concept rate
Your conversion rate (alias hit rate) is the percentage of people who buy out of the total
population of people you approach.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-54
85. (p. 237) All of the following are key things an influential person looks for in your business
plan presentation EXCEPT
A. your passion for the business.
B. your expertise about the business and the plan.
C. how many others are already working with you.
D. how easy it would be to work with you.
The key things an influential person looks for in you are: (1) your passion for the business, (2)
your expertise about the business and the plan, (3) how professional you are in your work, and
(4) how easy it would be to work with you.

Difficulty: Hard
Scenario: Connie's Corner Café

Having done the culinary classes at the local college, Connie has decided to explore the idea
of opening her own business, "Connie's Corner Café". She has found the ideal location next to
the college. However, it appears that Connie will have to get some outside investors or
bankers involved for the financial backing to get this venture off the ground. When she talked
to her local bank manager, Mr. Johnson, he immediately asked for Connie's business plan.
Connie knew she was in trouble because she didn't even know what a business plan looked
like.
86. (p. 214) Which of the following would represent Mr. Johnson's interest in Connie's business
plan?
B. Growth rate
Business plan concerns of bankers include cash flow and cash cycle, asset/collateral base, and
long-term prospects (Refer Table 8.1).
AACSB: Analytic
Difficulty: Medium
8-55
87. (p. 214) If Connie gets her family and friends involved as investors, which of the following
would be their concern or interest?
B. Growth rate
Business plan concerns of family and friends include amounts and schedules for returns,
stability of firm, funds use, and your investment (Refer Table 8.1).
AACSB: Analytic
Difficulty: Medium
88. (p. 221) Connie shops are established businesses and so Connie's business plans could/should
be _____ pages of text.
A. 40
B. 10
C. 20
D. 25
Where the type of business is well established, the market is well defined and well known,
and the entrepreneur comes to the business with experience in the industry, the amount of
necessary description drops dramatically. In such cases, these simple business plans may
require only 10 pages of text.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
8-56
89. (p. 222) Connie needs to know that all of the following are key components of a business
plan she should include EXCEPT
A. the market.
B. the organization.
C. the regulatory limitations.
D. the financials.
The major components of a business plan include cover letter, title page, table of contents,
executive summary, the company, the market, the organization, the financials, and the
appendixes (Refer Table 8.2).
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
90. (p. 235) Connie should be aware of which of the following risks that may cause Mr. Johnson
to evaluate her plan negatively?
A. Most likely the numbers
B. Experiencing deficit
C. High hit rate for preselling
D. Adequate or high payback
Experience deficits: Do you (or someone else in your firm) have experience in (a) the line of
business, (b) the industry, (c) the locality, (d) managing? Have it, find it, or say how you'll
learn it.

Difficulty: Hard
Essay Questions
8-57
91. (p. 214) Identify at least two concerns of different business plan audiences.
The kinds of benefits different groups look for in a plan are:

1. Family and friend investors: Amounts and schedules for returns, stability of firm.
2. Silent Partners/Angel Investors: Growth rate, market.
3. Joint venture partners: Fit between the firms, competitive advantage.
4. Bankers: Cash flow and cash cycle, asset/collateral base.
5. Government agencies and institutions: Compliance with regulations and laws, monitoring
compliance.
6. Potential customers: Service/product quality, benefits.
7. Key employees: Stability of firm, growth.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
92. (p. 215-220) Briefly describe the five types of business planning presentations.
The five types of business planning presentations are (1) vision statements, (2) mission
statements, (3) elevator pitches, (4) executive summaries, and (5) business plans.
1. The vision statement is a very simple 5-10 word sentence or better yet a tagline that
expresses the fundamental idea or goal of the firm.
2. The mission statement takes the vision statement's description of the firm's goal and adds
the competitive advantage information developed as part of the firm's strategy.
3. An elevator pitch is an action-oriented description of your business that is somewhat longer
than a vision statement or tagline. It is designed to open the door to a more in-depth dialogue.
4. An executive summary gives a one- to two-page overview of the business, its business
model, market, expectations, and immediate goals.
5. The business plan brings together every aspect of your business including your product and
service, your market and your strategy.
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-58
93. (p. 216-217) Differentiate between the vision statement and the mission statement of business
plan presentation.
A firm's vision statement is the most important single idea held by the owner and employees.
It is a simple 5-10 word sentence or a tagline that expresses the fundamental idea or goal of
the firm.
The mission statement takes the vision statement's description of the firm's goal and adds the
competitive advantage information developed as part of the firm's strategy. Mission
statements cover everything that is truly important. This might include the major competitive
advantages of the firm, its position in the industry, and its attitudes toward customers,
competitors, and the environment.

Difficulty: Medium
94. (p. 218-219) Describe executive summary including its utility and its topics.
An executive summary is the key component of the written business plan because it is the one
element that nearly everyone will read first when they receive a plan. An executive summary
gives a one- to two-page overview of the business, its business model, market, expectations,
and immediate goals. Executive summaries are usually organized in a series of short
paragraphs, each with a particular topic. These topics are:
Product: Describes the product or service and how it is used.
Market: Describes the size and characteristics of the customer group and how it will buy the
product or service.
Competitive advantages: Explains what makes the product or service unique, often in terms of
an entry wedge.
Management: Describes the entrepreneur and start-up team in terms of expertise and track
record.
Business: Describes the current stage of the business and when major milestones of starting,
sales, or profitability will be met.
Finances: Describes the deal being offered investors and the schedule for payouts.

Difficulty: Medium
8-59
95. (p. 220) Briefly summarize the 5-M Model of business planning.
The 5-M Model uses one-line bullet points in five areas to structure your thinking and your
full business plan:
Mantra: This follows the Vision/Tagline/Mantra model. Aim for three to four words, or six at
most.
Mission: This focuses on competitive advantage and goals, with a definite time period in
mind. Mission statements give the firm's major business goal, which can be stated
quantitatively or qualitatively, but always with a time period or end date.
Measures: These are business goals given as measurable results, in terms of sales, market
share, employment, locations, profits, growth, etc. It is typical to have multiple measures, and
they are typically given in quantitative form. This section should reflect the Mission.
Method: These are the activities which would make your business successful over the time
period given in the Mission section. It should tie in with the Measures and Mission. It is
typical to have multiple methods. Methods typically involve identifying qualitatively stated
strategic achievements which would prove you have done what you set out to do as a
business.
Mechanics: This section ties into everything above, and gives several specific tasks the
business needs to do to accomplish what is mentioned in the Method and Measures. These are
often given as one-line project descriptions.

Difficulty: Medium
8-60
96. (p. 221, 223) Explain the mechanics of a cover letter.
A cover letter is a one-page document on business stationery that introduces the business plan
and owner and indicates why the recipient is being asked to read the plan. It is typically the
first written material someone sees about your business, so it needs to look and sound just
right. For business plans, the first impression is made by the cover letter, so having a good
one-page letter is vital. Writing a good cover letter is easy.
Step 1: Get the stationery.
Step 2: Get all the recipients' address information.
Step 3: Draft your letter.
a. Salutation
b. First paragraph
c. Second paragraph
d. Third paragraph
e. Fourth paragraph
f. Signature block
Step 4: Proofread
Step 5: Package and send
AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
8-61
97. (p. 228-229) What should the financial components of a business plan comprise of? Explain.
When using a plan to find investors, the financials section starts with a page on critical risks
and one on the deal being offered investors. For all types of business plans, a set of financial
reports or projections then follows.
The deal subsection typically talks about how much money is needed and how the funds will
be used.
The financial statements expected include: (1) income statements and its assumptions, (2)
cash flow and its assumptions, and (3) balance sheet and its assumptions.
For start-up businesses, it is also common to include a listing of the expenses incurred in the
start-up process. For an existing business, the financials report the last two years of actual
data, and then offer three-year projections for the income, cash flow, and balance sheet.
Each of the financial statements also includes its assumptions, which explain how the
computations are made, which items are included or excluded, and whether there are any
special considerations underlying the particular numbers.
A schedule of the major milestones or benchmarks the company plans to achieve is often
included in the financials section. If significant milestones have already been achieved, these
can top off the schedule.

Bloom's: Knowledge
Difficulty: Medium
8-62
98. (p. 230-231) Identify and describe the four situations where the business plans need to provide
different focus.
Businesses face four situations in which reader needs are specific enough and distinct enough
that it makes sense to write the plan with particular emphases in mind.
Plans for a pioneering business: When your product or service is truly new to everyone, it is
considered a pioneering business. Plan on a detailed explanation of the product or service and
how it works. The value of preselling, pilot tests, or test marketing cannot be stressed enough.
Pioneering products face a hurdle around manufacturing—whether they can be manufactured
at a cost that leaves a chance for profit. Letters from manufacturers confirming the viability
and production costs of your product can alleviate these fears.
Plans for a new entrant business: When your product or service already exists but your firm is
the first of its kind in your market, it is considered a new entrant business. Help make the
product or service seem more familiar by detailing how it is used by customers; give more
background on how the product or service has done in other markets. Emphasize existing
operations in your industry analysis.
Plans for an existing business: When writing a plan for an existing business, you have the
benefit of knowing the history, the existing market, and the financial track record of the firm.
The projections about future markets, sales, and profits should clearly build on these historical
facts. Existing firms have assets to protect. Showing how you plan to protect and make
additional profits from your intellectual property strengthens the plan.
Plans for a business with significant government involvement: Some businesses depend on
government approvals to go forward. You need to build a plan that anticipates delays and
either works around the part of the business requiring approvals or uses as few resources as
possible until approval arrives. Working around approvals usually hinges on selling services
or products that are part of the business but do not require specific approval.

Difficulty: Medium
8-63
99. (p. 235) Discuss the business plan risks that are common threats to businesses.
Every business faces risks in the real world, so every business plan needs to spend some time
addressing them.
1. Overstated numbers: Examples include sales or profits that are too optimistic, owner
salaries above the minimum needed to live.
2. Numbers that are wrong: Examples include balance sheets that do not balance, numbers in
the financials that do not flow from one section to the next, no assumptions given for the
financials, etc.
3. Inadequate cushion: The number one killer of young firms is, not enough money. Having
enough cash to survive three months goes a long way to avoiding this risk.
4. Inadequate payback: There are always opportunities out there. Any plan that does not
clearly specify the key paybacks will fail to sell them on the idea.
5. Narrative and financials do not fit: If you have a plan that calls for a large marketing
campaign, but financials do not show costs for one, there is a problem.
6. No direct customer connection: If it sounds like you have not actually talked to potential
customers about your product/service, readers will consider that a major problem.
7. Uncertain sales: You need to prove your sales estimate. The best way is to know your
conversion rate.
8. Overlooked competition: You do not want to overlook a major player in your industry. If a
search on the Web or in a phonebook can turn one up, you could be in trouble. Be broad in
your search for competitors. Recall Porter's five forces to find competitors.
9. Experience deficits: Do you have experience in (a) the line of business, (b) the industry, (c)
the locality, (d) managing? Have it, find it, or say how you will learn it.
10. "What" problems: For the product or service, make sure it is explained clearly enough so
anyone could understand it. Make sure the plan is clear about what is being asked of the
reader.
11. Deadly aggravations: Looking and sounding professional is key. A plan with misspellings
looks amateurish. Lacking a table of contents, or page numbers in the plan makes life harder
for people you want to impress. Selling instead of summarizing in the executive summary
comes across as hucksterism.

Difficulty: Medium
8-64
100. (p. 237) When you present your business plan to influential people, what are they looking
for? Explain.
The key things an influential person looks for in you are: (1) your passion for the business, (2)
your expertise about the business and the plan, (3) how professional you are in your work, and
(4) how easy it would be to work with you.
Passion for the business: When presenting, do not read. Help listeners understand why you are
excited about the business, proud of it, and ready to stake your reputation and assets on it.
Expertise about the business and the plan: Practice answering questions about the plan.
Expect really tough questions. Be ready to explain where you get your assumptions, your
numbers, and your ideas. Be ready with comparisons to competitors and their offerings. It is
better to have less material and know it backwards and forwards than to have material in the
plan you do not totally understand.
How professional you are in your work: Your plan should look professionally done. It should
be neat and orderly, with perfect spelling and grammar. When you present it, you should be in
business suit or dress, clean and pressed. Carry copies of your presentation slides to give the
listeners. Have business cards ready. Meet all those attending the presentation with a smile
and a firm handshake. Make sure you know the names of all the people in the room, and their
position, so if there is a part of the plan you think might be of interest to them, you can
mention it.
How easy it would be to work with you: Typically when you are presenting a business plan,
you are doing it with the goal of establishing an ongoing relationship with the listener. Use
eye contact, use peoples' names, remember what they might be interested in or in what they
have shown an interest before, smile, and be honest. When they ask tough questions, try not to
get nervous, upset, angry, or defensive. If you do not have the answer, tell them so honestly,
make a note about their question and name, and tell the person you will get back to him or her
with the answer. Recognize that tough questions are the listeners' way of making sure they—
and you—are protected from risks.

Difficulty: Medium
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Edition Katz Test Bank

True / False Questions

12. A major organizational asset of a business is its location.

19. The conversion rate is also called the hit rate.

Multiple Choice Questions

25. _____ represents a business plan concern of joint venture partners.

26. Which of the following is NOT a business plan concern of bankers?

31. Which of the following statements about business plans is false?

33. The length of a vision statement should be

35. The length of an executive summary should be

37. All of the following concern taglines EXCEPT

42. Which of the following statements about an elevator pitch is true?

47. Which of the following statements about executive summaries is true?

48. Identify the correct statement about the 5-M Model.

52. Which of the following is NOT a major component of a business plan?

53. In the first paragraph of the cover letter, you

56. The market section talks about your

57. The market refers to the

59. Which of the following is a supra-strategy?

60. A "no-frills" strategy is an example of a

66. For an existing business

67. What is the goal of appendixes?

72. Which of the following is incorrect of screening plans?

74. Which of the following business plans is also called a "mini-plan"?

75. Which of the following is NOT a special-purpose plan?

79. All of the following pertain to a private placement memorandum EXCEPT

83. Which of the following risks is NOT a common threat to business?

Scenario: Connie's Corner Café

91. Identify at least two concerns of different business plan audiences.

92. Briefly describe the five types of business planning presentations.

95. Briefly summarize the 5-M Model of business planning.

96. Explain the mechanics of a cover letter.

Chapter 08 Business Plans: Seeing Audiences and Your Business Clearly

True / False Questions

12. (p. 227) A major organizational asset of a business is its location.

Multiple Choice Questions

Business plan concerns of potential customers include service/product quality, benefits,

AACSB: Reflective Thinking

33. (p. 216) The length of a vision statement should be

The vision statement is a very simple 5-10 word sentence.

35. (p. 216) The length of an executive summary should be

37. (p. 216) All of the following concern taglines EXCEPT

AACSB: Reflective Thinking

A tagline expresses the fundamental idea or goal of the firm.

An elevator pitch is an action-oriented description of your business.

AACSB: Reflective Thinking

An elevator pitch is designed to open the door to a more in-depth dialogue.

An elevator pitch is an action-oriented description of your business that is somewhat longer

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

56. (p. 225) The market section talks about your

57. (p. 225) The market refers to the

AACSB: Reflective Thinking

59. (p. 226) Which of the following is a supra-strategy?

60. (p. 226) A "no-frills" strategy is an example of a

Fragmented industry strategies include no-frills, formula facilities, etc.