2.1.4 Planning Flashcards

1
Q

A business plan will be used

A

both internally by the entrepreneur and externally by banks, external investors or those willing to provide grants

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2
Q

A business plan involves

A

•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

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3
Q

What is the purpose of business plans

A

•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

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4
Q

What’s the relevance of a business plan in obtaining finance

A

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

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5
Q

The business plan shows

A

●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

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6
Q

Cash flow in includes

A
Cash sales 
Payment from debtors 
Owners capital 
Sale of assets 
Bank loans
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7
Q

Cash outflow includes

A
Stock purchase 
Paying wages 
Paying debtors 
Creditors 
Purchasing assets
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8
Q

What’s the nature of cash flow

A
  • 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
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9
Q

What’s the difference between the cash flow forecast and cash flow statements

A

Cash flow forecast- prediction

Cash flow Statement - actual

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10
Q

What’s involved in Forecast cash inflows

A
  • Owner’s investment or other source of finance
  • Cash sales estimated from sales forecast
  • Debtor payments estimated from sales forecast
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11
Q

What’s involved in forecast cash outflows

A

Payment of fixed cost
Payment of variable costs
Unforeseen expense.
Payment terms

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12
Q

Cash inflow shows

A

Cash in from sales

Cash fro other sources - eg bank

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13
Q

Cash outflow shows

A

Cash out for purchases and payments

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14
Q

What is net cash flow

A

The net result of cash inflows and cash outflows each month

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15
Q

How do you calculate net cash flow

A

Cash inflow - cash outflow

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16
Q

What is the opening balance

A

How much the business has at the start of each month

Closing balance becomes the opening balance for next month

17
Q

What is the closing balance

A

How much the business has at the end of the month

Opening balance + net cash flow

18
Q

Negative cash balance is showed by

A

Brackets

19
Q

What factors affect cash flow

A

Transaction types ( cash/ credit , Payment terms )

Timing of cash flow ( seasonal , timings of payments in and out )

Nature of business ( start up capital costs )

20
Q

Timing of cash inflow , and how it affects the business

A
  • If cash inflows are slow this may cause cash flow problems
  • A firm may try to speed up cash inflows
  • This may include offering a discount for early payment or penalties for late payments
  • Businesses may need to chase customers for payment i.e. credit control
21
Q

Timings of cash outflow and how it affects the business

A
  • If cash outflows are too quick this may cause cash flow problems
  • A firm may try to slow down cash outflows
  • This may include negotiating longer payment terms from suppliers
22
Q

What are receivables

A

When a business is owed money from customers

23
Q

What are payables

A

When a business owes money to suppliers

24
Q

What are he cash flow problems

A

•Businesses need to have sufficient cash to meet day to day finances
Buying stock
Paying wages
Utility bills
•Insufficient liquid cash funds may mean an inability to meet short term debts
Bank overdraft
Payables (trade creditors)
•Limited cash may result in missed opportunities
•A key consideration should be whether the cash flow problem is short term or long term
•A firm may be able to survive short term cash flow problems

25
Q

What are the causes of cash flow problems

A
•Credit sales
Long payment terms
Poor credit control
•Overtrading
Additional overhead and day to day expenses
Increased capital expenditure
•Internal management
Stock control
Relationship with suppliers
Poor or inaccurate planning
•Seasonality
•Unexpected events
26
Q

How to improve cash flow

A

•Increasing the volume of the inflow of cash
•Speeding up the timing of the inflow of cash
•Inflows increase
Capital invested
Loans
Cash sales
•Reducing the volume of the outflow of cash
•Slowing down the timing of the outflow of cash
Outflows
Loan repayments
Day to day running expenses
Interest payments

27
Q

What are the uses of cash flow forecasts

A
  • To identify the timing and significance of any potential shortfalls
  • To identify possible corrective action
  • To help secure finance from potential investors or the bank
  • To give confidence about short term survival
  • To provide a guide against which to measure actual cash flow
28
Q

Limitations of cash flow forecast

A
  • Based on predicted future inflows and outflows therefore may be inaccurate
  • Informed by market research but this may be small scale, biased or flawed
  • Affected by the external environment which is outside of the entrepreneur’s control e.g. interest rates change, a supplier goes out of business, a new competitor opens
  • Demand may be over (or under) estimated