2.1.4 Business Planning Flashcards
Business plan
A document setting out a business idea, how it will be financed, marketed and put into practice.
Sections of a business plan
• Business overview.
• Description of business idea.
• Market research.
• Business strategy (Aims and objectives).
• Financials (sales/profit forecast, break-even).
• Operations plan - facilities and equipment.
• HR plan - management and personnel.
• Evaluation SWOT analysis.
Importance of a business plan
• To give your new business the best possible chance of success.
• To secure funding such as bank loans.
• To attract investors.
• To test the feasibility of your business idea.
Cash flow forecast
A prediction of future inflows and outflows of cash into and out of a business.
Net cash flow
Inflows - outflows
Closing balance
Opening balance + Net cash flow
Importance of cash flow forecasts
• Cash flow is a dynamic and unpredictable part of life for most businesses.
• Cash flow problems are the main reasons why businesses fail.
• Regular and reliable cash flow forecasting can address many of the problems.
• Cash is limited so it needs to be managed carefully. If a business runs out of cash it will almost certainly fail.
Causes of cash flow problems
• Sales prove lower than expected.
• Costs prove higher than expected.
• Customers don’t pay up on time.
• Rash cost assumptions - unexpected costs.
Benefits of cash flow forecasts
• Can identify potential cash flow problems in advance to avoid the possibility of insolvency.
• Shows owners when an overdraft is required.
• Can provide ideas on how to improve liquidity.
• Can provide evidence for loan or investment requests.
Drawbacks of cash flow forecasts
• Changes in the economy can affect sales and cost predictions.
• Changes in consumer taste would make sales forecasts unrealistic.
• New competition can drastically change predicted sales figures.
• Can be based on inaccurate market research.
