Deck 9: The Organizational Plan

Question 1

As described in the Opening Profile to Chapter 9, Walt Disney never did have difficulty in securing financing for his entrepreneurial ventures, as the quality of the finished products was always high and well received by the public, and being born into wealth also made it much easier.

Answer 1

False

Question 2

From the entrepreneur's perspective, the longer the venture can operate without outside capital, the higher the cost of the capital in terms of interest rates or equity loss in the company.

Answer 2

False

Question 3

From an investor's perspective, a potential investment opportunity must show an inverse relationship between risk and return.

Answer 3

False

Question 4

Informal or "angel"investors are individuals who are willing to invest in companies at early stages in their development, often when other forms of financing are unavailable to the entrepreneur.

Question 5

To a venture capital firm, later stage business investments __________.

A) are lower risk
B) provide faster returns on investment
C) require less managerial assistance
D) are fewer in number
E) All of the answers are correct.

Question 6

Equity financing is similar to debt financing expect that there is no collateral pledged against the amount raised.

Question 7

Retained earnings are typically used by the entrepreneur to re-pay angel investors or venture capitalists who may have taken a chance on the new venture.

Question 8

Venture capitalists are private firms that invest in businesses with high growth potential in return for a percentage of ownership.

Question 9

The saying "cash is king"has a second part which says, "but profitability is the queen, who really runs the show,"thus underscoring the greater importance of profitability to a new venture than cash flow.

Question 10

A new venture needs cash to conduct day to day operations, such as paying for materials, supplies, and labour to produce the goods or services being sold.

Question 11

Successful, fast growing businesses can fail due to a shortage of cash because their main source of funds are tied up in receivables, which are monies owed to the company by its customers.

Question 12

For most new ventures seeking to raise capital, if the idea is good, investors will not be too demanding on the details of the investment, such as how much is needed, what it will be used for, and when it will be needed.

Question 13

While there are many sources of financing available, the stage of the company will usually dictate the choice of funding available.

Question 14

When seeking financing for a new venture, the urgency associated with obtaining financing can be an important factor in the eventual cost of that financing to the business.

Question 15

A new venture's "burn rate"is important for an entrepreneur to know because it indicates how quickly customers leave the business after trying its goods or services.

Question 16

In Canada, startup business are traditionally externally funded, thus illustrating the strength of the entrepreneurial culture.

Question 17

Entrepreneurs starting a business in Canada have a relatively low rejection rate of 13% when seeking financing, which is countered by the demand for personal guarantees on the amounts borrowed.

Question 18

Startup small and medium-sized enterprises rely more on personal savings and lines of credit than for the same type of businesses once established, indicating the importance of having a track record or credit history.

Question 19

As cited in the text, trade credit from suppliers is a larger source of financing for startup SME's than for existing SME's.

Question 20

Seed capital for low-growth SME's refers to the funding need to get the business running, which is typically used for working capital, inventory, and marketing.

Question 21

As discussed in the text, first stage financing for low-growth SME's tends to be in relatively small amounts which are typically used for conducting market research and developing the business plan for the new venture.

Question 22

Second stage financing for a low-growth SME is typically used for working capital and expanding the operations of the growing and profitable business.

Question 23

The most difficult and costly financing for a high-growth SME to obtain is in the expansion or development phase, due to the risk involved.

Question 24

Seed capital for financing a high-growth business tends to be in relatively small amounts and used for feasibility studies and/or market research.

Question 25

Startup financing for a high-growth business is typically used to develop products and pay for initial marketing efforts.

Question 26

Venture capitalists are more interested in development financing of high-growth businesses as the numbers are bigger and the feasibility of the idea is easier to evaluate than in the early stage of the business.

Question 27

Acquisition and leveraged buyout financing for the high-growth business is a specialized form of financing used when the new venture is ready to go public with an IPO.

Question 28

The informal risk-capital market consists of venture capital firms who prefer to remain anonymous when investing in risky but high potential businesses.

Question 29

Venture capital firms set relatively high minimum investment amounts due to the high cost in evaluating and monitoring a deal.

Question 30

Debt financing is sometimes referred to as asset-based financing because some assets of the company are pledged as collateral for the loan.

Question 31

The primary advantage of debt financing is that it allows the entrepreneur to retain ownership and control of their business.

Question 32

The type of debt financing used should match what the money is used for, such as long-term debt is used for providing working capital while short-term debt is used to purchase capital equipment.

Question 33

As defined in the text, obtaining funds for the company in exchange for part ownership is known as equity financing.

Question 34

Unlike debt financing, equity financing requires the pledging of collateral and a share of future profits of the company.

Question 35

As discussed in the text, being risk-averse, most Canadian entrepreneurs would rather use equity financing than burden their companies with more debt.

Question 36

The type of funds most frequently employed is internally generated funds, such as profits, sales of assets, reduction in working capital, extended payment terms, and accounts receivable.

Question 37

While leasing assets rather than purchasing them does help an entrepreneur to conserve cash, caution must be exercised when evaluating the cost of such arrangements.

Question 38

Alternative sources of external financing are normally evaluated only on one dimension, which is the interest rate charged.

Question 39

As a sign of commitment to the new venture, the use of the entrepreneur's personal funds for financing is essential to attract outside funding from banks, private investors, and venture capitalists

Question 40

To avoid conflict when using family and friends as finance sources for a new venture, it is recommended that the arrangement be as business-like as possible, with a written agreement specifying all of the details of the arrangement.

Question 41

As described in the Opening Profile to Chapter 10, Walt Disney's success can be attributed to__________.

A) an unfailing entrepreneurial spirit
B) perseverance in the face of adversity
C) his ability to raise money from a variety of sources
D) a flexible attitude towards ethical behaviour
E) All of the answers are correct.

Question 42

As described in the Opening Profile to Chapter 10, for entrepreneur Walt Disney, becoming a public corporation to raise money was __________.

A) the way to make a graceful exit from the company he created
B) not the ultimate salvation for Disney Productions
C) the pivotal event that provided the funds to build an amusement park called Disneyland
D) a disaster as there was very little interest in the company by investors
E) None of the answers apply.

Question 43

Startup ventures need cash for which of the following reasons?

A) to gain access to supplies such as raw materials
B) to purchase assets such as equipment
C) to pay employees to work
D) to build inventory of finished goods to sell
E) All of the answers are correct.

Question 44

For a startup venture, the relationship between profitability and cash can best be described as__________.

A) cash is important but profits are the heart of the business
B) if the business is profitable, cash will accumulate
C) profits are important but cash is the heart of the business
D) if the cash starts to accumulate, the business is profitable
E) None of the answers apply.

Question 45

The importance of the saying, "cash is king"to a new business is supported by which of the following?

A) A growing and profitable company can easily run out of cash and fail.
B) Many suppliers prefer to deal in cash to avoid problems with payables.
C) A high cash flow business may be unprofitable without the owner's knowledge.
D) In the short run, liquidity is a sign of profitability.
E) All of the answers are correct.

Question 46

When attempting to raise capital, an entrepreneur should know which of the following?

A) how much is needed
B) when the funds will used
C) how long the money is expected to last
D) what the money will be used for
E) All of the answers are correct.

Question 47

The type of financing an entrepreneur can access is usually dictated by __________.

A) the stage the business is in
B) who the business wants to sell to
C) the type of opportunity the company is pursuing
D) the stage the business is in and the type of opportunity the company is pursuing
E) All of the answers are correct.

Question 48

In Canada, the most frequently used source of funds for a startup business is __________.

A) bank loans
B) personal savings
C) credit cards
D) government loans and grants
E) trade credit from suppliers

Question 49

In Canada, the most frequently used source of funds for a small and medium sized (SME) business already in operation is __________.

A) leasing
B) government loans and grants
C) personal savings
D) commercial credit cards
E) commercial loans and lines of credit

Question 50

In comparison to operating SME's, an entrepreneur trying to get their venture started __________.

A) is more likely to be turned down by banks and be required to personally guarantee any debt
B) is less likely to be turned down by banks but will pay a higher interest rate
C) is more likely to use trade credit from suppliers as a source of capital
D) will rely more heavily on commercial loans and lines of credit
E) All of the answers are correct.

Question 51

An entrepreneur seeking to obtain financing for a low-growth SME __________.

A) will attract the interest of many venture capital firms who specialize in this area
B) will likely be limited to equity as their main source of capital
C) will have their choice of debt or equity types of financing
D) will likely be limited to debt as their main source of capital
E) All of the answers are correct.

Question 52

When financing low growth SME's, the stage of financing that is used to conduct market research and develop the business plan is known as __________.

A) early stage seed capital
B) early stage startup
C) first stage expansion/maintain operations
D) second stage expansion/maintain operations
E) None of the answers apply.

Question 53

When financing low growth SME's, the stage of financing that is used to get the business running, including working capital, inventory, and marketing is known as __________.

A) early stage seed capital
B) early stage startup
C) first stage expansion/maintain operations
D) second stage expansion/maintain operations
E) None of the answers apply.

Question 54

When financing low-growth SME's, funding used to maintain operations as the business is striving to become profitable takes place at which of the following stages?

A) early stage seed capital
B) early stage startup
C) first stage expansion/maintaining operations
D) second stage expansion/maintaining operations
E) None of the answers apply.

Question 55

When financing low-growth SME's, funding used for working capital and expansion ideas takes place at which of the following stages?

A) seed capital
B) startup
C) first stage expansion/maintaining operations
D) second stage expansion/maintaining operations
E) None of the answers apply.

Question 56

For a high-growth SME, the most difficult and costly to obtain financing occurs in which of the following stages?

A) early-stage financing
B) second stage expansion/development financing
C) third stage expansion/development financing
D) acquisitions and leveraged buyout financing
E) None of the answers apply.

Question 57

When financing a high-growth SME, funding in relatively small amounts which is used to prove concepts and finance feasibility studies is known as __________.

A) early stage seed capital
B) early stage startup capital
C) second stage expansion/development financing
D) third stage expansion development financing
E) None of the answers apply.

Question 58

When financing a high-growth SME, funding used for product development and initial marketing is sought in which of the following stages?

A) early stage seed capital
B) early stage startup capital
C) second stage expansion/development financing
D) third stage expansion/development financing
E) None of the answers apply.

Question 59

A high-growth SME seeking second stage expansion/development financing typically uses the money for__________.

A) working capital to support initial growth
B) major sales expansion
C) bridge financing as the company prepares to go public
D) acquisitions or leveraged buyouts
E) None of the answers apply.

Question 60

A high-growth SME seeking third stage expansion/development financing typically uses the money for__________.

A) working capital to support initial growth
B) major sales expansion
C) bridge financing as the company prepares to go public
D) acquisitions or leveraged buyouts
E) None of the answers apply.

Question 61

A high-growth SME seeking fourth stage expansion/development financing typically uses the money for__________.

A) working capital to support initial growth
B) major sales expansion
C) bridge financing as the company prepares to go public
D) acquisitions or leveraged buyouts
E) None of the answers apply.

Question 62

As discussed in the text, the best source of first-stage financing for high-growth SME's is the__________.

A) informal risk-capital market
B) venture-capital market
C) public-equity market
D) All of the answers are correct.
E) None of the answers apply.

Question 63

In addition to all the legal issues surrounding the actual preparation and filing of the prospectus, several other important legal concerns exist. Perhaps the one that is of the most concern to the entrepreneur is the quiet period,- what is this?

Question 64

Discuss the different factors that are used when attempting to determine the value of a business.

Question 65

Debt financing requires the entrepreneur __________.

A) to pay back the full amount borrowed over time
B) to pay a fee for the use of the money called interest
C) to pledge some assets as collateral for the amount borrowed
D) All of the answers are correct.
E) None of the answers apply.

Question 66

The primary advantage to the entrepreneur of using debt financing versus equity financing is__________.

A) there is less collateral that needs to be pledged
B) no ownership of the venture is lost when the financing is obtained
C) a personal guarantee is only necessary when the amount financed exceeds $50,000
D) All of the answers are correct.
E) None of the answers apply.

Question 67

When evaluating debt financing options, an entrepreneur should __________.

A) stick with one lender as loyalty tends to be rewarded with lower rates
B) match the term of the borrowing to the asset(s) being purchased
C) always go with the lender who demands the least in pledged collateral
D) All of the answers are correct.
E) None of the answers apply.

Question 68

Discuss the recommended guidelines for an entrepreneur attempting to deal with venture capitalists as presented in the text.

Question 69

The advantage of equity financing to the investor is (are) which of the following?

A) partial ownership of the company
B) sharing in the profits of the venture
C) opportunity to provide advice and influence the direction of the company
D) All of the answers are correct.
E) None of the answers apply.

Question 70

The criteria used when evaluating debt versus equity financing include which of the following?

A) availability of funds
B) assets of the venture
C) prevailing interest rates
D) All of the answers are correct.
E) None of the answers apply.

Question 71

As discussed in the text, studies have shown that when evaluating sources of financing, Canadian entrepreneurs __________.

A) prefer dealing with major banks more than any other sources of financing
B) prefer to use debt financing versus equity financing by a large margin
C) would rather deal with any source other than the major banks
D) prefer to use equity versus debt financing by a large margin
E) None of the answers apply.

Question 72

Discuss the three general criteria that venture capital firms look for when evaluating investment opportunities.

Question 73

To an entrepreneur, leasing or renting equipment and other assets provides which of the following benefits?

A) it conserves cash just when the company needs it most
B) they can be used as collateral for additional financing
C) it is frequently cheaper to rent than to own
D) All of the answers are correct.
E) None of the answers apply.

Question 74

An entrepreneur short of cash could use which of the following short-term sources of internal funds?

A) delaying payments to creditors whenever possible
B) reducing inventories of raw materials and finished goods
C) being more aggressive collecting accounts receivable
D) All of the answers are correct.
E) None of the answers apply.

Question 75

An entrepreneur will evaluate the use of external sources of financing using which of the following criteria?

A) the length of time the funds are available
B) the costs involved
C) the amount of company control lost
D) All of the answers are correct.
E) None of the answers apply.

Question 76

Discuss the characteristics of Canadian angel investors and what recommendations were made in the text regarding how an entrepreneur would find and solicit their services.

Question 77

Which of the following statements are true regarding the use of personal savings as a source of financing for the entrepreneur?

A) Personal savings are the least expensive funds in terms of cost and control.
B) Most entrepreneurs try not to mix their personal money with the business finances to avoid any conflicts of interest.
C) External sources of funding demand that the entrepreneur be significantly committed to the venture, which includes the use of their own resources.
D) Personal savings are the least expensive funds in terms of cost and control and external sources of funding demand that the entrepreneur be significantly committed to the venture, which includes the use of their own resources.
E) All of the answers are correct.

Question 78

When it comes to financing new ventures, external providers of capital prefer to see __________.

A) a significant amount of personal money invested by the entrepreneur
B) a high level of commitment from the entrepreneur to the business
C) essentially all of the entrepreneur's available personal assets invested
D) an entrepreneur not "put all of their eggs in one basket"
E) None of the answers apply.

Question 79

Discuss the non-monetary costs of acquiring outside capital to a new venture, as presented in the text.

Question 80

Discuss the different stages of financing low-growth SME's as presented in the text. What type of businesses would fall into this category?