2.1.4 - Planning Flashcards
What is a business plan, and why is it important for a business?
A business plan is a document outlining what a business aims to achieve and how it plans to achieve it. It’s important for both new and established businesses to monitor performance and stay on track.
What key sections should a business plan for a new business include?
A good business plan includes an overview of the business, aims and objectives, marketing and sales strategy, details of employees, and financial forecasts.
What financial forecasts should a business plan include?
A business plan should include a cash flow forecast, sales forecast, break-even analysis, expenditure budget, and projected statements of comprehensive income and financial position, for both the short and medium term.
How does a business plan help a business obtain finance?
A business plan shows that the business owners have done their research, lowers perceived risk for investors, and demonstrates the business’s potential profitability and success.
How can a good business plan affect the cost of finance?
A solid business plan can help a business secure cheaper loans or better terms, as it shows the business is likely to repay its debts successfully and on time.
What are cash inflows and cash outflows in a business?
Cash inflows are money received by the business (e.g., from sales or loans), while cash outflows are money paid out (e.g., for raw materials or wages).
What is working capital?
Working capital is the cash a business has available for day-to-day operations, crucial for managing costs and paying suppliers before receiving payments from customers.
What is the purpose of a cash flow forecast?
A cash flow forecast shows the expected cash inflows and outflows over a future period, helping businesses manage their finances and avoid running out of cash.
How do businesses use cash flow forecasts to make decisions?
Managers use forecasts to ensure they have enough cash to pay suppliers and employees, predict cash shortages, and arrange for loans or overdrafts in time.
How can businesses improve their cash flow forecasting accuracy?
Businesses need to consider market changes (e.g., costs, competitors, consumer preferences) and update forecasts accordingly, which may involve adjusting activities or bringing in cash earlier.
What factors can make cash flow forecasting inaccurate?
Market changes, such as fluctuations in costs, competitor actions, or shifts in consumer preferences, can impact sales and cash flows, making forecasts less reliable, especially over longer periods.
What happens if a business runs out of cash due to inaccurate forecasting?
If a business runs out of cash, it may become insolvent, meaning it cannot pay its debts and may be forced to close down.
How is the closing balance in a cash flow forecast calculated?
The closing balance is calculated by adding the opening balance and the net cash flow (cash inflows minus cash outflows).
How is the net cash flow in a cash flow forecast calculated?
cash inflows - cash outflows
What do negative figures in a cash flow forecast represent?
Negative figures in a cash flow forecast are shown in brackets and represent cash outflows or losses.
