1.6 Business planning

Question 1

Fixed costs

Answer 1

Remain the same regardless of output/use (e.g. rent, salaries, overheads)

Question 2

Variable costs

Answer 2

Vary with output (e.g. stock)

Question 3

Total costs

Answer 3

Total costs = fixed costs + variable costs.

Question 4

Profit

Answer 4

Profit = revenue - total costs

Question 5

Reasons to create business plan.

Answer 5

• Help raise finance from other stakeholders, e.g. banks can see and offer loans.
• Setting aims and objectives
• Detail how business functions will operate, and how departments will be organised.

Question 6

Issues with business planning

Answer 6

• Time consuming, e.g. may slow entry to market so new business may fail to satisfy gap in market in time.
• Expensive