2.1.4 Planning

Question 1

What is a business plan?

Answer 1

A document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cash flow.

Question 2

What is the main aim of producing a business plan?

Answer 2

To reduce the risk associated with starting a new business.
- It shows potential lenders or investors that the business has done their research and increases the chances of getting a loan.

Question 3

What is a cash flow forecast?

Answer 3

A prediction of the anticipated cash inflows and cash outflows, typically for a six to twelve month period.

Question 4

How is the net cash flow calculated in a cash flow forecast?

Answer 4

Total inflows - Total outflows

Question 5

How is the opening balance calculated in a cash flow forecast?

Answer 5

It is the previous month’s closing balance carried forward.

Question 6

How is the closing balance calculated in a cash flow forecast?

Answer 6

Opening balance + Net cash flow

Question 7

What are the advantages of cash flow forecasts?

Answer 7

• Can support an application for a loan and are an integral part of the business plan.
• Can help identify where the business may experience cash shortfalls or cash surpluses so that plans can be made to manage these periods.
• Can aid planning and help a business avoid costly mistakes.

Question 8

What are the disadvantages of cash flow forecasts?

Answer 8

• They are usually based on estimates.
• They require appropriate skills, insight, research and time to prepare and update adequately.
• External factors that can impact cashflow may not be reflected in the cash flow forecast.