2.1.4 Business plans Flashcards
business plan
-written document that outlines aims and objectives for business
why is a business plan important
- analyse market/decide which
- motivate staff
- monitor performance = progress towards goals
- allocate resources efficiently
- decide future direction
- investors assess viability
- help obtain finance
- best possible chance of success
- feasibility of business idea
groups of people interested in seeing BP
- shareholders/ investors: assess whether make return of investment (SH=dividence/share value) (I=profit)
- bank: see if viable, see if financially stable
- employees: job security, progression
- supplier: know scale of business, repay supplier= trade credit
elements of business plan
- workforce plan: no./type of skills = achieve output & sales target
- cash flow forecast: money coming in/out of bank account (receipts/payable)
- marketing plan: target market, promotional budget/how
- financing proposals: amount of capital required/how it will be raised & how repaid
- break even analysis: sales volume/value needed to cover all costs
- profit forecast: revenue/cost anticipated over lifetime of proposal
business plan sections and importance:
- business overview (background/legal structure) = liability
- description (product/service/USP) = revenue/added value
- strategy (short/long term aims) = longetinity
- marketing (MR, target market, marketing mix) = demand fits target market
- management personal (skills/experience of yourself/members) = increase costs/recruitment plan
- operations (production facilities/equipment) = assess investment required
- financial info (sales/profit forecast/breakeven) = profitable, SOF required
- evaluation (SWOT analysis)
SWOT analysis
Strength
weakness
opportunity
threat
4 ways how do BPs reduce risk
- external factors = financial forecast and market research
- consider all eventualities = contingency plan
- reduce application for finance failing
- efficient resource allocation
limitations of business plans
- management ability to implement plan
- gathering info/MR=challenging/impossible (niche/new)
- difficult to forecast in dynamic market
- financial forecasts based on inaccurate info if no past sales data - challenging
- external factors
why do financial institutions (banks) want to asses BP?
- owner/manager (background/experience etc)
- management enthusiasm but realism
- plan thought through
- plan used to run business =checking progress
looking for 2 assurances banks are:
- business has means of making regular payment of interest on amount loaned cash flow forecast
- if goes wrong bank can still get its money banks (assets use collateral) - sole trader/partnerships forward looking financial statement cash flow forecast are important
cash flow forecast (FUTURE)
- money coming into &out of the business ( each month)
- set onto a grid showing cash movements in each month & how affect overall cash holdings (closing balance)
- venture is viable, capital needed, dangerous months
- identifies amount & timing of cash flow problems
components of a cash flow forecast
cash inflow: sums expected to arrive each month (financial sources or customers)
cash outflow: planned payments per month e.g. wages, suppliers, landlords
cash flow forecast is completed by..
calculating:
1. monthly balance (cash inflow for month - cash outflow)
+ve/-ve movements of cash
-outflow > inflow = -ve monthly balance
- opening and closing balance
-start of month (opening)
-end of the month (closing)
closing balance = opening balance + monthly balance, overall state of bank account end of month
7 ways how to improve a business’s cash flow?
1-shortest time (sooner to customers sooner payment)
2-efficient production and distribution
3-paid quickly as possible (discounts for early payments)
4-stocks raw materials minimum (JIT)
5-leasing
6-renting
7-postponing expenditure e.g. new company cars
limitations of cash flow forecasts:
- only as good as raw data put in (entrepreneurs need to be optimistic may overestimate sales and underestimate operational difficulties and cash outflows)
- risk giving impression of certainty where none exists especially start up
- have to allow contingencies in it (clever cash flow forecast include planned overstatement of costs allowing for unexpected problems)
