2.2 - Financial Planning

Question 1

What is the purpose of sales forecasts?

Answer 1

Sales forecasting enables businesses to plan and make informed decisions about future operations, marketing, and resource allocation.

Question 2

How do Consumer Trends affect sales forecasts?

Answer 2

Consumer preferences will change and would likely skew the forecasted data based on how dynamic that businesses market is.

Question 3

How do Economic Variables affect sales forecasts?

Answer 3

Demand for good/services can be affected by a range of economics variables such as interest rates and exchange rates.

Question 4

How do the Actions of Competitors affect sales forecasts?

Answer 4

Competitors may make actions that cannot be anticipated that may have a big impact on businesses sales forecasts. For example, if a major competitor suddenly adopted a predatory pricing strategy then it is likely to result in a big fall in the demand for the businesses goods/services.

Question 5

What are the difficulties of sales forecasting?

Answer 5

Many sales professionals won’t have the training required to closely predict future sales.
Also, sales in a dynamic market are likely to change year-on-year so using past data may not be helpful or useful for forecasting.

Question 6

How do you calculate Sales Volume?

Answer 6

(Actual Units Sold - Expected Units Sold) x Price per unit = Sales Volume Variance

Question 7

How do you calculate Sales Revenue?

Answer 7

Units Sold x Sales Price = Sales Revenue

Question 8

How do you calculate Fixed Costs?

Answer 8

Add together all of the business expenses that are not dependent on the level of goods or services produced by the business.

Question 9

How do you calculate Variable Costs?

Answer 9

Add together any expenses that change based on how much a company produces and sells.

Question 10

How do you calculate Contribution?

Answer 10

Selling Price - Variable Cost Per Unit

Question 11

How do you calculate Break-Even?

Answer 11

Fixed Costs ÷ Contribution

Question 12

How do you calculate the Margin of Safety Ratio (%)?

Answer 12

(Margin of Safety / Current Sales Level) x 100.

Question 13

How do you calculate the Margin of Safety (£)?

Answer 13

Current Sales Level – Breakeven Point = Margin of Safety

Question 14

What are the limitations of break-even analysis?

Answer 14

Break-even charts assume a business will sell all of the stock and at the same price.
Businesses can be unrealistic in their calculations.
Variable costs could change regularly, meaning the analysis could be inaccurate.
They can be time consuming to create.

Question 15

What is the purpose of a budget?

Answer 15

A business budget is a spending plan for your business based on your income and expenses. It identifies your available capital, estimates your spending, and helps you predict revenue.

Question 16

What is a historical figures budget?

Answer 16

Historical budgeting is a budgeting approach that focuses on past allocations and spending. This method starts by examining previous budget periods. Then, minor adjustments are made to account for required changes, such as inflation, changing interest rates, and material cost shifts.

Question 17

What is a zero based budget?

Answer 17

Zero-based budgeting means budgeting by justifying and approving all expenses for each accounting period, rather than basing it on your past spending. By starting from a ‘zero base’ at the beginning of each budget, you can create a really effective process for analysing and deciding where to allocate your funds.

Question 18

What is Variance Analysis?

Answer 18

Variance analysis is a method of assessing the difference between estimated budgets and actual numbers. It’s a quantitative method that helps to maintain better control over a business.

Question 19

What are the difficulties of budgeting?

Answer 19

A budget could be inflexible, and not allow for unexpected circumstances.
Creating and monitoring a budget can be time consuming.
Budgeting could create competition and conflict between teams or departments.
if targets are unrealistic, employees could become stressed and under pressure.