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← Unit 4: Developing and Completing the Venture Plan

BDI3C · Unit 4 test review

Developing and Completing the Venture Plan: Test Review

Everything for the Unit 4 test on one page: the key facts from all 7 lessons, the mistakes that cost the most marks, and a practice test that points you back to the lessons you need.

Key facts

Resources, Rules and Forms of Ownership

  • The resource plan covers land, buildings, capital, equipment, services and people needed to operate.
  • General liability covers harm to others from operations; product liability covers harm from what you made, sold or repaired; property covers your own things; business interruption covers lost income.
  • In Ontario, a business name other than the owner's legal name must be registered with the province.
  • A small supplier has taxable sales of $30,000 or less over four consecutive calendar quarters; above that, HST registration is required.
  • Sole proprietors and general partners have unlimited liability; corporation shareholders and co-op members have limited liability.
  • A partnership should always have a written partnership agreement covering contributions, profit split and what happens if a partner leaves.

The Production Plan

  • Every production plan follows input, process, output, with a quality check before delivery.
  • Time per unit is the sum of the step times; capacity = hours available ÷ hours per unit, rounded down.
  • Job production makes one custom unit at a time; batch production moves a group through each step; continuous production runs non-stop.
  • Choose suppliers on price, quality, reliability, terms and location, not price alone.
  • Reorder point = daily usage × lead time + safety stock.
  • FIFO means use the oldest stock first; just-in-time means stock arrives just as it is needed.

The Marketing Plan for Your Venture

  • A direct channel goes from business to customer with no intermediary; an indirect channel uses one, such as a retailer or consignment shop.
  • A promotion strategy states the goal, target market, message, tools, timing, budget and how success will be measured.
  • Markup % ; margin % .
  • Cost-plus starts from cost, comparative starts from competitors' prices, and psychological pricing adjusts the final number so it feels lower.
  • Penetration starts low to win customers; skimming starts high and lowers the price over time.

Financial Goals and Start-Up Capital

  • Four financial goals: break-even point, projected profit, return on investment and market share. Each should be SMART.
  • Start-up capital one-time start-up costs operating reserve.
  • Operating reserve monthly operating expenses number of months (often 3).
  • always state what the investment is.
  • using the same unit on top and bottom.

Cash-Flow Projections and Break-Even

  • Net cash flow total cash receipts total cash payments.
  • Closing cash opening cash net cash flow, and each month's closing cash is the next month's opening cash.
  • Profit is not cash: timing, non-cash expenses, loan principal, drawings and inventory purchases all make them differ.
  • Break-even units always rounded up to a whole unit.
  • Break-even in dollars break-even units price.
  • Units for a target profit rounded up.

Financing the Venture

  • Debt must be repaid with interest but keeps ownership; equity needs no repayment but gives up ownership and a share of profits.
  • Simple interest: , with as a decimal and in years (months ).
  • Total repaid principal interest; equal payment total repaid number of payments.
  • The five Cs of credit: character, capacity, capital, collateral, conditions.
  • Trade credit (e.g. net 30) lets a venture pay a supplier later, moving a payment into a later month.

Completing and Presenting the Venture Plan

  • The overview opens the plan: executive summary, mission statement, vision statement and goals.
  • Mission: what the venture does, for whom and why, today. Vision: what it aims to become in the future.
  • The executive summary is a one-page snapshot that appears first but is written last.
  • Revise so every number and assumption agrees across sections, e.g. start-up capital equals total financing.
  • Use spreadsheets with formulas for financials, word processing for the written plan, and presentation software and charts for the pitch.
  • A pitch ends with a clear ask: how much, for what, and how it will be repaid.

Where marks get lost

  • Listing equipment but forgetting services such as insurance, a phone plan or the market-stall rental, so the start-up budget comes up short. (Resources, Rules and Forms of Ownership)
  • Mixing up general liability (someone is hurt at your workplace) and product liability (someone is hurt by something you sold or repaired). (Resources, Rules and Forms of Ownership)
  • Thinking a business must register for HST from its first sale. Registration is required only once taxable sales exceed $30,000 over four consecutive calendar quarters, though a business may register voluntarily. (Resources, Rules and Forms of Ownership)
  • Starting a partnership on a handshake. Without a written agreement, partners often disagree later about who owns what and how profit is split. (Resources, Rules and Forms of Ownership)
  • Believing a corporation is always best because of limited liability, without weighing its extra cost and paperwork. (Resources, Rules and Forms of Ownership)
  • Rounding capacity up. If the answer is 8.7 bikes, the capacity is 8, because a partly finished bike cannot be sold. (The Production Plan)
  • Choosing a supplier on price alone and ignoring shipping, minimum orders and lead time, which can wipe out the savings. (The Production Plan)
  • Leaving out safety stock and setting the reorder point at daily usage × lead time, so any late delivery or busy day causes a stockout. (The Production Plan)
  • Thinking more inventory is always safer. Extra stock ties up cash, takes space and can age on the shelf. (The Production Plan)
  • Putting new stock in front of old stock, so the oldest items expire unused. That is the opposite of FIFO. (The Production Plan)
  • Dividing by the price when asked for the markup. Markup is on cost; margin is on price. (The Marketing Plan for Your Venture)
  • Picking a price only from competitors' prices without checking that it covers the cost. (The Marketing Plan for Your Venture)
  • Using skimming for a product entering a market that already has plenty of competitors. Skimming needs something new that early buyers really want. (The Marketing Plan for Your Venture)
  • Writing a promotion plan that lists tools but no budget, timing or way to measure results. (The Marketing Plan for Your Venture)
  • Adding HST to the price before calculating markup or margin, or charging HST while still an unregistered small supplier. (The Marketing Plan for Your Venture)
  • Leaving out the operating reserve, so start-up capital covers only equipment and stock and the venture opens with no cash for rent. (Financial Goals and Start-Up Capital)
  • Counting a monthly expense (like rent) as a one-time start-up cost and then counting it again in the reserve. A rent deposit is one-time; the rent itself is monthly. (Financial Goals and Start-Up Capital)
  • Calculating ROI with revenue instead of net profit on top. Revenue of $18,200 on $8,700 is not a 209% return, because the expenses have not been paid yet. (Financial Goals and Start-Up Capital)
  • Not stating the base for ROI, so one reader thinks it is measured on the owner's savings and another on total start-up capital. (Financial Goals and Start-Up Capital)
  • Setting a market-share goal from hope rather than research, such as 50% of a market the venture could never physically serve. (Financial Goals and Start-Up Capital)
  • Forgetting to carry the closing cash forward, so every month starts again from the original opening balance. (Cash-Flow Projections and Break-Even)
  • Adding the opening cash into total receipts. Opening cash is money already in the bank, not new cash coming in. (Cash-Flow Projections and Break-Even)
  • Treating a negative net cash flow as a shortfall even when closing cash stays positive, or ignoring a month whose closing cash is negative. (Cash-Flow Projections and Break-Even)
  • Leaving loan principal and owner's drawings out of the cash-flow projection because they are not expenses. They are still cash going out. (Cash-Flow Projections and Break-Even)
  • Rounding break-even down (37.78 to 37) or dividing fixed costs by the price instead of by the contribution margin. (Cash-Flow Projections and Break-Even)
  • Forgetting to convert months to years in : 2 months is of a year, not 2. (Financing the Venture)
  • Using the rate as a whole number (6 instead of 0.06), which makes the interest 100 times too big. (Financing the Venture)
  • Thinking equity is "free money" because there is no interest. Investors take a share of every future profit and often a say in decisions. (Financing the Venture)
  • Asking for venture capital for a small local service business. Venture capital firms look for ventures that can grow very large, very fast. (Financing the Venture)
  • Borrowing from family or friends on a handshake, with no written terms for the amount, repayment dates or what happens if the venture fails. (Financing the Venture)
  • Writing the executive summary first and never updating it, so its numbers no longer match the finished financial plan. (Completing and Presenting the Venture Plan)
  • Mixing up mission and vision: the mission describes what the venture does now and why; the vision describes what it hopes to become. (Completing and Presenting the Venture Plan)
  • Leaving numbers inconsistent between sections, such as financing that does not add up to the start-up capital. Lenders notice immediately. (Completing and Presenting the Venture Plan)
  • Typing totals into a spreadsheet instead of using formulas, so changing one month's sales leaves the closing cash wrong. (Completing and Presenting the Venture Plan)
  • Pasting a full cash-flow table onto a slide and reading it aloud, instead of showing one chart and explaining what it means. (Completing and Presenting the Venture Plan)

Practice test

21 questions from across the unit. Each one shows the lesson it comes from.

  1. Resources, Rules and Forms of Ownership
    1
    A customer slips on an oily floor at Spoke & Wrench's garage and is injured. Which insurance covers this claim?
  2. Resources, Rules and Forms of Ownership
    2
    Spoke & Wrench wants to put a flyer in the school's morning announcements and run a repair clinic in the school parking lot. What does it need first?
  3. Resources, Rules and Forms of Ownership
    3
    Put these steps for planning human resources in a sensible order.
    1. 1Recruit and hire
    2. 2Write a job description for each role
    3. 3Identify the roles still needed
    4. 4List every task the business must do
    5. 5Decide which tasks the owners can cover
  4. The Production Plan
    4
    Spoke & Wrench uses 2 sets of brake pads a day. The supplier's lead time is 5 days and the owners keep 4 sets as safety stock. What is the reorder point, in sets?
    sets
  5. The Production Plan
    5
    A supplier sells chains for $12 each plus $18 shipping per order. What is the cost per chain on an order of 20 chains? Answer to the nearest cent.
    $
  6. The Production Plan
    6
    Which is the biggest risk of keeping far more inventory than needed?
  7. The Marketing Plan for Your Venture
    7
    A refurbished kids' bike costs Spoke & Wrench $30. What is the price with a 50% markup on cost? Answer to the nearest cent.
    $
  8. The Marketing Plan for Your Venture
    8
    Which price is an example of psychological pricing?
  9. The Marketing Plan for Your Venture
    9
    A consignment shop sells a bike for $140 and keeps 25% of the price. How much does the venture receive? Answer to the nearest dollar.
    $
  10. Financial Goals and Start-Up Capital
    10
    A student dog-grooming venture has one-time start-up costs of $4,250. Its monthly operating expenses are $1,150, and the owner wants a two-month operating reserve. What is the total start-up capital?
    $
  11. Financial Goals and Start-Up Capital
    11
    Ava's Cycle Works' $600 garage rent deposit belongs in which part of start-up capital?
  12. Financial Goals and Start-Up Capital
    12
    If Ava's Cycle Works' net profit came in at $2,175 instead of $3,105, what would its ROI on $8,700 of start-up capital be, as a percentage?
    %
  13. Cash-Flow Projections and Break-Even
    13
    A venture opens a month with $1,250 in cash. Its receipts for the month are $3,400 and its payments are $3,975. What is its closing cash?
    $
  14. Cash-Flow Projections and Break-Even
    14
    Which of these is a cash payment but NOT an expense, so it appears on a cash-flow projection but not on an income statement?
  15. Cash-Flow Projections and Break-Even
    15
    What is the name for regular rises and falls in sales that happen at the same time each year?
  16. Financing the Venture
    16
    A venture borrows $5,000 at 7% simple interest per year for 3 years. How much interest does it pay?
    $
  17. Financing the Venture
    17
    Match each of the five Cs of credit to the question a lender asks.
    Character
    Capacity
    Capital
    Collateral
    Conditions
  18. Financing the Venture
    18
    Put the steps of getting a small business loan in a sensible order.
    1. 1Accept the loan agreement and receive the money
    2. 2The lender assesses the five Cs of credit
    3. 3Make the payments on schedule
    4. 4Calculate start-up capital and how much must be borrowed
    5. 5Complete the venture plan, including the cash-flow projection
    6. 6Meet the lender and present the plan
  19. Completing and Presenting the Venture Plan
    19
    Which part of the venture plan is placed first but should be written last?
  20. Completing and Presenting the Venture Plan
    20
    Put these parts of a venture plan in the order they appear in the finished document.
    1. 1Financial plan
    2. 2Marketing plan
    3. 3Appendices
    4. 4Title page
    5. 5Executive summary
    6. 6Business description, mission and vision
  21. Completing and Presenting the Venture Plan
    21
    Which closing line best makes "the ask" at the end of a pitch to a lender?

Endless drill

Fresh numbers every time, for the calculation questions in this unit.

Endless drillnew numbers every time

Generating a problem…

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