1.6 Business Planning

Question 1

What is a business plan

Answer 1

A written document that describes a business, its objectives, its strategies, the market it is in, and its financial forecast

Question 2

What is business planning

Answer 2

The process of producing a business plan.

Question 3

What is a loan

Answer 3

An amount of money provided to a business for a stated purpose in return for regular repayments including interest charges

Question 4

What is uncertainty

Answer 4

Occurs where there is a lack of information about a situation. This means the outcome or consequences are very difficult to predict

Question 5

What is a risk

Answer 5

The possibility of something going wrong

Question 6

What is the purpose of business planning

Answer 6

• Provides a focus on the business idea
• Helps test financial viability of the idea
• Encourages entrepreneur to set appropriate objectives that are in line with business activities
• Producing a document helps clarify thoughts and identify gaps in information
• It is essential in order to raise finance from outside providers, such as investors and banks
• Helps an owner become more organised and allows the planning process to have a logical structure
• Provides something which can be used to measure actual performance

Question 7

What information should be on a business plan

Answer 7

• The idea
• Where the idea came from and why it is good
• Objectives
• Finance required
• Market overview
• How the business will operate
• Cash flow forecast
• Forecast revenue, costs and profits

Question 8

Advantages of business planning

Answer 8

• Allows owners to review ideas and predict profit
• Reduces risk by outlining what needs to be done when
• Allows owners to review business progress against the plan and make changes if required
• Helps secure finance
• Conduct market research to help reduce risk of failue

Question 9

Disadvantages of business planning

Answer 9

• Plans may be poor quality due to lack of research or experience
• Plans need constant updating which can be time consuming
• Producing and reviewing plans regularly requires time and effort which can be expensive, especially for small businesses
• New opportunities can be missed

Question 10

What is revenue

Answer 10

The income that a firm receives from selling its goods or services. It is also referred to as turnover. It is measured by the number of units sold multiplied by the price.

Question 11

What is total cost

Answer 11

fixed cost + variable cost

Question 12

What is fixed cost

Answer 12

a cost that does not change

Question 13

What is a variable cost

Answer 13

a cost that varies with the level of output

Question 14

How do you calculate profit

Answer 14

total revenue - total costs

Question 15

How do you calculate total costs

Answer 15

fixed costs + variable costs

Question 16

What is profit?

Answer 16

The profit made by a business is the money that is left over once all of the expenses incurred in running the business have been paid. Businesses usually separate their costs into fixed costs and variable costs . This means that a business can calculate two different types of profit: Gross profit and net profit .

Question 17

What is loss?

Answer 17

If the expenses are more than the money received then it’s considered a loss. A profit is a positive number and a loss is a negative number.