Business Planning (2.1.4)

Question 1

What is a business plan?

Answer 1

Is a document produced by the owner at start-up, which provides forecasts of items such as sales, costs and cashflow

Question 2

What does a Business Plan do?

Answer 2

It shows potential lenders or investors that the business has done their research. Allows them to make an informed decision

Question 3

What are the two main goals of Business Plans?

Answer 3

• To Minimize Risk
  -To Obtain Finance

Question 4

What are the 8 components of a business plan?

Answer 4

-Executive Summary
-Aims +Objectives
-Market Research
-Marketing Mix
-Operational Plan
-Methods of Finance
-Sales Forecast/ Cash Flow Forecast
-Conclusion

Question 5

What is the Cash Flow?

Answer 5

Movement of money in and out of a company. Cash received signifies inflows, and cash spent is outflows. The cash flow statement is a financial statement that reports a company’s sources and use of cash over time.

Question 6

What is a Cash Flow Forecast?

Answer 6

Cash flow forecasting is the act of predicting what cash inflows and outflows will be at particular points in the future. A cash flow forecast is a financial document that estimates the movement of money in and out of a business over a period of time, usually 12 months. . The forecast shows the future cash balances of a business and helps managers to plan for cash needs and obligations.

Question 7

How are cash flow forecasts useful in a business?

Answer 7

1. Financial Planning: It enables businesses to plan for their financial future, set goals, and allocate resources effectively.
2. Improved Decision-Making: Cash flow forecasts help in making informed decisions about investments, expenses, and debt management.
3. Risk Management: Forecasting allows businesses to identify and mitigate potential cash shortages or surpluses, reducing financial risk.

Question 8

What will predicting cash flow depend on? (5 factors)

Answer 8

-Experience of the forecaster
-Volume of past data available
-Consumer trend fluctuations
-Seasonality
-External Influences

Question 9

How do you work out Net Cash Flow?

Answer 9

Cash Inflows-Cash Outflows

Question 10

How do you work out Opening Balance?

Answer 10

Previous months Closing balance carried forward

Question 11

How do you work out Closing Balance?

Answer 11

Net Cash Flow + Opening Balance

Question 12

What are the advantages of a cash-flow forecast?

Answer 12

-They are an integral part of the business plan
-Can help identify where the business may experience cash shortfalls or cash surpluses so plans can be made to manage these periods
-Aids planning and help a business avoid costly mistakes

Question 13

What are the disadvantages of a cash-flow forecast?

Answer 13

-Usually based on estimates and in reality, inflows and outflows may differ significantly from the estimates
-Require appropriate skills, insight, research and time to prepare and update adequately
-External factors that can impact inflows and outflows may not be reflected in the forecast as they can’t be predicted