2.1.4 Planning Flashcards
1
Q
What is the main aim of a business plan?
A
- To reduce the risk associated with starting a new business
2
Q
What actually is a business plan?
A
- A document produced by the owner at start-up which provides forecasts of items such as sales, costs & cash flow
3
Q
What does a business plan allow?
A
Allows lenders (e.g banks) & other investors to analyse the plan and make an informed decision about providing a loan
Forces the business owner to think about every aspect of the business before they start which should reduce the risk of failure
4
Q
What is a cash-flow forecast?
A
- A prediction of the anticipated cash inflows and cash outflows, typically for a 6-12 month period
5
Q
How do you work out net cash flow?
A
Cash inflows - Outflows
6
Q
How do you work out the opening balance?
A
- The previous months closing balance carried forwards
7
Q
How do you calculate the closing balance?
A
- Net cash flow + Opening balance
8
Q
What are the advantages of cash flow forecasts?
A
- Can support an application for a loan and are an integeral part of the business plan
- They can help identify where the business may experience cash shortfalls or cash surpluses so that plans can be made to manage these periods (e.g arranging an overdraft)
- Cash flow forecasts aid planning & help a business avoid costly mistakes
9
Q
What are the disadvantages of cash flow forecasts?
A
- Forecasts are usually based on estimates and in reality inflows and outflows may differ significantly from the estimates
- Cash flow forecasts require apporpriate skills insight research and time to prepare and update adequately which some people may not be able to do so
- External factors that can impact inflows and outflows may not be reflected in the cash flow forecast
ALSO New entrepreneurs find it especially difficult to create accurate forecasts as they have little experience to draw on.
