2.1.4 Planning

Question 1

Business plan

Answer 1

A document that sets out what the business is, what It does, what it wants to achieve and how it is going to do. It is normally used as part of an attempt to gain financial backing for the business

Question 2

The purpose of a business plan

Answer 2

Secure external funding, ensure that a firm develops a healthy financial structure, to identify the problem areas a business might face, a focus to set targets and check firms development, to provide realistic expectations

Question 3

A suitable business plan is

Answer 3

Helps finance providers assess the business model, provides assessment for opportunities and risks, encourage analysis of competitors, provides benchmark against progress, helps determine amount of finance required

Question 4

Key contents of a business plan that is used to raise finance consists of

Answer 4

Business model, it’s competitive advantage, market position, financial forecast, threats, marketing strategy, much more

Question 5

Why is a business plan relevant

Answer 5

A business plan acts as a sales document or brochure for the business, telling potential investors how and why the business will succeed

Question 6

Cash flow forecast

Answer 6

Statement of expected cash inflow coming from the sales revenue and expected cash outflow needed to cover production costs

Question 7

Cash flow is important to a business because

Answer 7

It needs to ensure a positive cash balance to meet day to day expenses

Question 8

Opening balance

Answer 8

What is in the name on the first day of the month

Question 9

Total cash inflow

Answer 9

All cash entering the business in that month

Question 10

Total cash outflow

Answer 10

All cash leaving the business in that month

Question 11

Net cash flow =

Answer 11

Total cash flow - total cash outflow

Question 12

Closing balance =

Answer 12

Opening balance + net cash flow

Question 13

Factors affecting cash flow

Answer 13

Timings of cash inflow. To speed up cash inflows they may offer discounts for early payments or penalties for late repayments, business may need to chase customers. Timings of cash outflow - too quick causes problems eg payables

Question 14

Limitations of cash flow forecast

Answer 14

Prone to error, the further ahead they are- the less accurate the forecast becomes, careful planning can’t take into account all possibilities that may arise, customer tastes may change, demand may be unsuccessfully estimates

Question 15

Cash flow problems

Answer 15

Low profits or losses, over investment in capacity, too much stock, allowing customers too much credit, over trading, unedited changes, seasonability

Question 16

Debtors

Answer 16

A person or business that owes money to a creditor. Unlimited liability should mean that credit is easier to obtain as suppliers have a greater chance of getting their money back if things go wrong

Question 17

What is credit control

Answer 17

Policies on how much credit to give and repayment terms and conditions, measures on control debt factors, credit checking

Question 18

What is debt factoring

Answer 18

Selling of debtors to a third party. This generates cash and guarantees the firm a percentage of money owed to it but will reduce income and profit margin made on sales