2.1.4 Business planning

Question 1

What is a business plan?

Answer 1

a written document that sets out the businesses objectives, strategies for achieving them and its financial forecasts

Question 2

Benefits of a business plan

Answer 2

-access to source of finance
-measuring performance
motivational/directional
-creating it forces a business to consider the direction of the business

Question 3

How does producing one help to reduce risk?

Answer 3

• forces a business to conduct market research
• creates plans and contingency plans
• consider funding and cash flow planning
• consider the external environment and SWOT/PESTLE

Question 4

Which groups of people might be interested in seeing a business plan?

Answer 4

• banks
• venture capitalist
• business angels
• potential partners
• suppliers
• senior leaders

Question 5

What are the sections in a business plan, and where does this information come from?

Answer 5

• market information (size, growth, competitors, market share)
• marketing mix
• operational plan (location, production methods, staffing, logistics)
• financial forecasts (cash flow forecast, break-even)
• aims and strategies

Question 6

What are the limitations of a business plan?

Answer 6

• can become out of date quickly (unexpected changes in the external environment)
• time consuming (entrepreneur may not have the skills to complete all sections)
• the act of planning does not mean the plan will be a success as the business actually has to implement the plan

Question 7

Why does a business write a business plan?

Answer 7

• to persuade lenders
• Attract potential investors to the business
• To give the owners some direction
• objectives that can be followed
• To monitor their effectiveness

Question 8

What is included on a business plan? - Cash flow forecast

Answer 8

• A cash flow forecast on the plan will show the expected income and expenditure of a business over the coming year
• Cash flow forecast will help to show a bank that the interest rates can be afforded on any finance that they borrow
• Cash flow forecast will show the liquidity of the business (how quickly it can raise cash) and its ability to pay its bills