2.1.4 Planning (cash flow)

Question 1

define business plan

Answer 1

a plan for the development of a business, giving details such as products to be made, resources needed and forecasts

Question 2

define cash flow forecast

Answer 2

the prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

Question 3

define cash inflows

Answer 3

the flow of money into a business

Question 4

define cash outflows

Answer 4

the flow of money out of a business

Question 5

define net cash flow

Answer 5

the difference between the cash flowing in and the cash flowing out of the business in a given time period

Question 6

define solvency

Answer 6

the degree to which a business is able to meet its debts when they fall due

Question 7

why do businesses write business plans?

Answer 7

to persuade lenders they will make enough money back
attract potential investors to the business
to set aims and objectives that can be followed
to provide direction for the business

Question 8

what is a business plan?

Answer 8

a document which sets out the future plans for a business
-explains how they will turn the idea -> successful business
-show plan to bank or another investor to ask for finance

Question 9

what is included in the business plan?

Answer 9

Name, Product/Service, Target market, 4PS, human resources, production costs, financial info etc…

Question 10

describe a cash flow forecast

Answer 10

a forward looking prediction where the business will have a shortfall od cash and this allows the business to organise short-term cash borrowing to cover the shortfall
-organise loans
-not about profit
-()= negative

Question 11

what is the formula for cash flow

Answer 11

CF = total cash inflow- total cash outflow

Question 12

what is the opening balance?

Answer 12

the cash held by the business at the start of the month

Question 13

what is the closing balance?

Answer 13

the cash held by the business at the end of the month
-> opening balance +net cash flow
-becomes opening balance for next month

Question 14

what are some advantages of using cash flow forecasts?

Answer 14

-helps identify the time of cash shortage and surplus -> helps plan loans to cover
-supports applications for finance -> indicates future outlook for business
-enhances the planning process as helps clarify aims and improve performance
-monitors cash flow -> improvements can be made

Question 15

what are some limitations of using cash flow forecasts?

Answer 15

only a 12 month snapshot as can be over or under estimated
-to get a full picture needs to be used with a balance sheet, the statement of financial income
-the owner may have overstated expenditure of understated income -> time consuming -> cost of meeting customer needs

Question 16

What would a business plan include?

Answer 16

a business overview
Aims and objectives
Marketing Strategy
Sales strategy
Financial forecasts
Shows how profitable a business can be