2.1.4 Planning

Question 1

What is a business plan?

Answer 1

A plan for the development of a business and its future

Question 2

Why does a business write a plan?

Answer 2

• attract investors
• give owners direction
• persuade lenders that business will make enough profit to pay back
• set targets/objectives
• identity problems they might face
• monitor progress/effectiveness

Question 3

What does cash flow forecast show?

Answer 3

• expected income and expenditure over the next year
• shows banks that interest rates can be afforded
• shows the liquidity of a business

Question 4

What are the 4 main uses of a business plan?

Answer 4

1. Help set up a new business
2. Help business raise finance
3. Help business set objectives
4. Outline how functions will be organised

Question 5

How can a business plan help raise finance?

Answer 5

• negotiate a lower interest rate

- persuade lenders that business will make enough profit

Question 6

How can a business plan help set objectives?

Answer 6

• shows how business aims to achieve its goals

- shows planned activities and launches

Question 7

How does a business plan outline how functions will be organised?

Answer 7

It shows how many staff and location of the following departments:

• production
• marketing
• purchasing
• human resources
• accounting/finance

Question 8

What is a cash flow forecast?

Answer 8

A day to day running of a business budget

Question 9

What does a cash flow forecast show?

Answer 9

Shows where the business will have a shortfall of cash and be unable to pay short term bills

Question 10

Difference between opening and closing balances

Answer 10

Opening is brought forward from last month

Closed is carried forward to next month

Question 11

What are the limitation of cash flow forecast?

Answer 11

• only shows 12 months, short term to make concrete decisions
• only an estimate = actual sales or expenses could be lower/higher