2.1.4 Planning Flashcards
what is a business plan?
a document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow
why do business’ set up a plan?
-to persuade lenders
-to attract potential investors
-to give owners some direction
-to set targets (SMART)
what’s included in a business plan?
-a cash flow forecast (to calculate expected income over a year)
-helps show a bank the interest rate that can be afforded
what is the purpose of a business plan?
-help set up a new business
-help the business raise finance
-help the business set up objectives
-outline how functions of the business will be organised
what are the four P’s?
-price
-promotion
-product
-place
what is a balance sheet?
a financial statement that shows the assets, liabilities, and equity of a business at a specific point in time
what is the formula for net cash?
net cash =
total inflow - total outflow
what is the formula for closing balance?
closing balance =
net cash + opening balance
what is the formula for opening balance?
opening balance =
previous month’s closing balance
how is the reorder level calculated?
reorder level = max level - min level
what is a cash flow forecast?
it’s a prediction of all the cash going in and out of the business during a period of time
what are the uses of a cash flow forecast?
-businesses will use it to control/monitor cash in and out of the business
-allows comparisons between predictions and actual cost
-shows likely deficits/shortfalls so they can arrange an overdraft with a bank
what are the drawbacks of a cash flow forecast?
-only a 12 month snapshot, very short time to make a concrete business decision, for long term finance
-estimates may be inaccurate
-owner may have overestimated/underestimated
-not about profits (only used for short term debts)
-for a full picture (a business would need to show a statement of comprehensive income and a statement of financial position)
