2.1.4 Planning Flashcards
A business plan will be used
both internally by the entrepreneur and externally by banks, external investors or those willing to provide grants
A business plan involves
•The executive summary - a synopsis of the entire plan looking at the most important points
•The business and products or services
•The market e.g. size, share, competitors
•The marketing strategy
-financial forecasts
What is the purpose of business plans
•To secure external funding
•banks, potential partners, venture capitalists, business angels
•To ensure that the firm develops a healthy financial structure
•To help identify problem
areas that the business might face
-sets targets to focus on
-provide realistic expectations
What’s the relevance of a business plan in obtaining finance
When raising finance a business plan acts as a sales document or brochure for the business telling potential investors how and why the business will succeed, which is also how and why it will be able to repay loans or reward equity investors e.g. pay dividends
The business plan shows
●Show that the entrepreneur is well organised and has logically worked through all the issues related to the start-up
●Give clear objectives that the entrepreneur will work towards
●Evidence the research to support sales and financial forecasts
●Provide detailed financial forecasts including:
●Cash - flow forecasts
●Budgets
●Forecast financial documents
Cash flow in includes
Cash sales Payment from debtors Owners capital Sale of assets Bank loans
Cash outflow includes
Stock purchase Paying wages Paying debtors Creditors Purchasing assets
What’s the nature of cash flow
- Cash flow is important to a business as it needs to ensure a positive cash balance in order to be able to meet day to day expenses
- A cash flow forecast is a forward looking statement that tries to predict cash inflows and outflows in the future
What’s the difference between the cash flow forecast and cash flow statements
Cash flow forecast- prediction
Cash flow Statement - actual
What’s involved in Forecast cash inflows
- Owner’s investment or other source of finance
- Cash sales estimated from sales forecast
- Debtor payments estimated from sales forecast
What’s involved in forecast cash outflows
Payment of fixed cost
Payment of variable costs
Unforeseen expense.
Payment terms
Cash inflow shows
Cash in from sales
Cash fro other sources - eg bank
Cash outflow shows
Cash out for purchases and payments
What is net cash flow
The net result of cash inflows and cash outflows each month
How do you calculate net cash flow
Cash inflow - cash outflow