214 Planning Flashcards
What is a business plan
A business plan is a document that outlines a business goals and objectives and how to achieve them. business plan helps decision making.
Why to business plan:
-business plan reduce risk to investors of business failure, eg cash flow forecasts ensure business has enough current assets for day to day trade & to pay off liabilities = help investors decide if business is viable= business obtain finance eg loans as business plan helps persuade the bank
-motivate staff to achieve goal = increase productivity
-help benchmark business performance to its plan at end of year to measure success
-business plan help gain CA as the document can help customers differentiate services in market= higher market share.
Cash flow forecast
shows predicted cash inflows and outflows in business monthly. help spot patterns in seasonal demand.
Cash flow analysis:
-opening balance is the closing balance from previous month.
-closing balance is net cash flow + opening balance.
-net clash flow= inflows - outflows
Uses of Cash flow Forecast:
-identify predicted negative cash, business minimise input- use jit= only pay for stocks when needed in production= less cash spent.
-to keep cash in, minimise short term spendings on equipment by renting and leasing rather than buying.
-Businesses compare cf forecast to financial objectives.
-investors want to see a cf forecast before investing as it helps them know whether business can pay back the loan with interest.
Limitations of cash flow forecasts:
-bias occur if cf made by internal worker=optimistic & overestimate predicted cash inflows & underestimates operational difficulties to persuade investors.
-cannot take into account unforeseen events like extreme weather affecting the supplies & future externalalities like compet/taxes= risk of uncertainty.
-accuracy of cf likely to decrease as the further you predict into the future.
-cf forecasts is time consuming especially if business size is large & it needs to be updated on a regular basis.
