2.1.4 planning Flashcards
What is the primary purpose of a business plan?
Reduces risks associated with starting a new business
A business plan serves as a roadmap for entrepreneurs, helping them navigate the complexities of establishing a new venture.
How does a business plan help lenders?
Allows lenders to make an informed decision about their investment
Lenders can assess the viability of a business based on the detailed information provided in the plan.
What is included in a business plan that supports loan applications?
Identifies when a business may experience shortfalls and surpluses
This identification helps lenders understand potential financial challenges and opportunities.
What is a key component of cash flow forecasting?
Net cash flow = total inflows - total outflows
This formula helps businesses understand their cash position over a period.
What does the opening balance in cash flow forecasting represent?
Previous closing balance
The opening balance is the amount of cash available at the beginning of the forecasting period.
What is the formula for calculating the closing balance in cash flow forecasting?
Closing balance = net cash flow + opening balance
This calculation determines the amount of cash available at the end of the forecasting period.
What are some limitations of cash flow forecasts?
- Based on estimates
- Require appropriate skills, insight, research, and time
- External factors can impact inflows and outflows
These limitations highlight the challenges in creating accurate forecasts.
True or False: A business plan can aid in planning and help businesses avoid costly mistakes.
True
A well-structured business plan can guide decision-making and strategic planning.
What does a business plan force the owner to consider?
Every aspect of the business
This comprehensive approach ensures that all critical factors are addressed.
