Business Plan and Financial Management in Entrepreneurship

Flashcards covering key concepts related to business plans and financial management in entrepreneurship.

What is the purpose of a business plan?

A business plan is a written narrative that describes what a new business intends to accomplish and how it plans to achieve its goals.

Who are the primary audiences for a business plan?

The primary audiences for a business plan are the firm's employees and potential investors.

What is a summary business plan?

A summary business plan is 10 to 15 pages long and works best for companies in early stages of development.

What distinguishes a full business plan from a summary business plan?

A full business plan is typically 25 to 35 pages and provides detailed information compared to a summary business plan.

What does an operational business plan outline?

An operational business plan provides a blueprint for a company's operations and is usually 40 to 100 pages long.

What is the first guideline to follow when writing a business plan?

The structure of the plan is the first guideline; use a conventional structure for better focus from investors.

Why should a business plan be concise and clear?

A concise and clear plan increases the probability of it being effective and understood by stakeholders.

What is the executive summary in a business plan?

The executive summary is a quick overview of the entire business plan for busy readers.

What is the purpose of the industry analysis in a business plan?

The industry analysis describes the industry a business will enter.

Why is the management team section critical in a business plan?

Investors often examine this section to assess the strength of the people starting the firm.

What does the sources and uses of funds statement detail?

It specifies how much money a firm needs, where it will come from, and what it will be used for.

What three actions can founders take to establish a strong ethical culture?

1. Lead by example, 2. Establish a code of conduct, 3. Implement an ethics training program.

What is a founders' agreement?

A written document that deals with issues such as equity split, compensation, and vesting.

What are common suggestions for new firms to avoid litigation?

Meet contractual obligations, avoid undercapitalization, get everything in writing, promote business ethics.

What types of licenses and permits may a start-up need?

A start-up typically needs a business license and may require additional permits depending on local regulations.

What are the major forms of business organization?

Sole proprietorships, partnerships, corporations, and limited liability companies.

What are the four main financial objectives of entrepreneurial ventures?

Profitability, liquidity, efficiency, and stability.

What is the difference between historical and pro forma statements?

Historical statements reflect past performance, while pro forma statements project expected future performance.

What is the purpose of financial forecasts?

Forecasts are predictions of future sales, expenses, income, and capital expenditures.

What is the significance of pro forma financial statements?

They help entrepreneurs evaluate the quality of strategies and anticipate future activities.

What is the liability of newness?

The challenge that new ventures often face because founders struggle to adjust to new roles and lack a track record.

What is a new-venture team?

A group of people who move a new venture from an idea to a fully functioning firm.

What is the role of an advisory board?

A panel of experts who provide ongoing counsel and advice to a firm's management team.

What is bootstrapping in entrepreneurship?

Finding ways to avoid the need for external funding, often through creativity and cost reduction.

What are the three major sources of personal financing for entrepreneurs?

Personal funds, friends and family, and bootstrapping.

What are the three steps involved in preparing to raise debt or equity financing?

1. Determine how much money is needed, 2. Determine the type of financing, 3. Develop a strategy for engaging investors.

What are the three main sources of equity funding available to entrepreneurs?

Business angels, venture capital, and initial public offerings (IPO).

How do commercial banks typically view loans to entrepreneurial ventures?

They are often reluctant to lend due to the risk and lower profitability compared to larger firms.

What is the SBIR and STTR grant program?

Important sources of early-stage funding for technology-based ventures.

What is a noncompete agreement?

An agreement that prevents an individual from competing against a former employer for a specified period.

What does a sources and uses of funds statement entail?

It lays out how much money a firm needs and specifics about the sources and uses.

Why should business plans be checked for errors?

To ensure clarity and professionalism, ensuring all vital information is included.

What is the importance of legal issues for new firms?

Addressing them early can prevent litigation and clarify the roles and interests of founders.

How does networking contribute to an entrepreneurial venture's success?

It helps build relationships that can bring advantages and support to the firm.

What are creative sources of financing for entrepreneurial firms?

Leasing and grant programs, such as SBIR and STTR, are examples of creative financing.

What is the five-year plan in a business?

A strategic document outlining a company’s goals and objectives over a five-year period.

Why is clarity important in a business plan?

It helps potential investors understand the business opportunity and strategy.

What role do forecasts play in financial management?

They allow firms to project future financial performance based on past data.

What is a cash flow statement?

A document summarizing the changes in a firm's cash position over a specified period.

What is the significance of establishing a code of conduct in a business?

It provides a framework for ethical behavior and standards within the organization.

What is meant by liquidity in financial management?

The ability of a firm to meet its short-term obligations.

What is the purpose of an income statement?

To reflect the results of a firm’s operations over a specified period of time.

How can entrepreneurial ventures handle cash flow challenges?

By effectively managing timing of expenses and revenue generation.

What are the implications of using equity financing?

It involves exchanging partial ownership of the firm for financial support.

What is the importance of evaluating a business plan's style and format?

It should appear professional without suggesting excessive costs to prepare.

What factors determine if a venture is likely to succeed or fail?

Founders' ability to adapt, manage, and the firm's track record in the market.

What constitutes a strong ethical culture in a firm?

A culture where ethics are prioritized in decision-making and operations.

What actions can founders take to prevent undercapitalization?

Ensure adequate financial planning and secure necessary funding before launch.

Why is it critical for new ventures to have a diverse founding team?

A diverse team can offer varied skills and experiences that enhance the venture's chances of success.

How does an effective presentation of a business plan look?

It includes 20 minutes of remarks, 12 sharp PowerPoint slides, and 40 minutes of Q&A.

What is the role of peer encouragement in establishing ethical standards?

Peers reinforcing ethical behavior can significantly influence workplace culture.

What is a statement of cash flows?

It summarizes changes in cash position and details the reasons behind those changes.

What is the primary focus of financial management in entrepreneurship?

Raising money and managing finances to achieve the highest rate of return.