2.1.4 Planning Flashcards
Businesses are more likely to what?
More likely to succeed when the entrepreneurs have created a detailed business plan.
Business plan
A formal document, outlining what a business wants to achieve, and how it intends to be successful
Who uses a business plan and how?
1) Owners - as a guide & working document
2) Lenders - To investigate the likelihood of success and risk of lending to a new business
3) Investors - to assess the risk and reward of investing in the business
4) Partners & employees - want to know about the business & what it’s like to work for them
Lenders and investors are not likely to invest into a business unless what
Unless the owners can provide a clear, concise vision of future progress and profitability
A suitable business plan —->
4 things
1) Helps finance providers assess the business model
2) Provides a structured assessment of the opportunities and risks
3) Provides a benchmark against which progress can be measured by
4) Helps determine the amount of finance required
What are in the contents of a business plan?
1) Executive summary - one page overview of the business outlining it’s purpose and the opportunity
2) Business opportunity - An outline of the business idea and concept so that all stakeholders can understand the owners intentions
3) Aims and Objectives - They have to be Smart
4) Market research - target market , competitors , marketing priorities
5) Financial forecasts - A variety of financial forecasts incl. sales, cash, profit/loss and a break even analysis
6) Sources of finance - where the finance to start up the business will come from
7) Premises and equipments - needs to be obtained + financed
8) Buying and production - details of how products will be produced + relationships with suppliers
9) Personnel- who will run the business, types of employees
forecasting
A business process, assessing the probable outcome using assumptions about the future
Cash flow forecasts
A prediction of estimated cash inflows and cash outflows over a future period of time which shows the expected cash balance at the end of each month.
Cash inflow
the flow of money into a business
Cash outflow
The flow of money out of a business
Net Cash flow
The difference between the cash flowing in and the cash flowing out of a business in a given time period
Solvency
The degree to which a business is able to meet its debts when they fall due.
A cash flow forecasts lists all the likely what?
Receipts ( Cash inflows) and payments ( Cash outflows) over a future period of time.
Advantages of cash flow forecasts?
1) Helps identify the timing of cash shortages + surpluses.
This is important for businesses that have seasonal demands
2) Helps support application for finance - lenders to tend to look at a business performance and solvency.
3) Enhancing the planning process - `Producing a cash flow forecasts is a key part of business planning because it is a document concerned with the future.If business owners try to run a business without any forward planning. Without forward planning mistakes are more likely to occur.
4) Monitoring cash flow - During + at the end of the financial year, a business should make a comparison between the predicted figures in the cash flow forecasts and actual results
Will help identify where problems have arisen.
- constant monitoring of cash flows will allow a business to control it’s cash flow effectively.
Limitations of cash flow forecasts
1) Based on estimates - Fixed costs e.g rent + insurance are easy to predict but Variable costs e.g raw materials, wages are all rough estimates .
As a result if figures for cash inflow and outflow are inaccurate then net cash flow and closing balances will be unreliable
2) Business activity is subject to external factors that is beyond the controls of owners and managers. E.g factors like interest rates, government rules, consumer trends + competition can change which can all impact business costs and revenues effecting cash flow forecasts.
3) Costly + Time consuming. - Can be spending too much time gathering info + assembling forecasts and has to be updated and monitored regularly.
might be a danger that too much time is focused on cash flow-forecasts at the expense of meeting customer needs.
4) Only focuses on one business variable- Cash. Other variables e.g profit, profit margins and productivity are also important.
Cash flow forecasts are a one dimensional tool and can’t be used to evaluate the performance of a business.
