Chapter 12.1 - financial planning

Question 1

a cash budget will determine if a business has adequate financial resources on hand to pay bills as they become due or if they will need to ____ money

Answer 1

borrow

Question 2

how is a business budget similar to a personal or family budget?

Answer 2

• has same goals - spending money, where money is going and how it is coming in
• both try to come out with a profit

Question 3

costs of operating a business

Answer 3

expenses

Question 4

to develop an effective _____, information to predict income and expenses is needed

Answer 4

to develop an effective budget, information to predict income and expenses is needed

Question 5

a _____ identifies where a business is going

Answer 5

budget

Question 6

true or false

financial planning is needed by a small business only until it begins to make a profit

Answer 6

false

needed by all businesses

Question 7

what things are included in the cash budget?

Answer 7

sales, rent, electricity, bills, income

Question 8

What are the 2 main purposes of a business budget?

Answer 8

1. anticipate sources and amounts of income for a business
2. predict the types and amounts of expenses for a specific business activity or the entire business

Question 9

_____ requires an understanding of financial info, computer skills, mathematical abilities and effective communication skills

Answer 9

budgeting

Question 10

when planning an _____ budget, income and expenses from previous budgets are reviewed. planners look for possible changes that could increase or decrease income and expenses.

Answer 10

operating

Question 11

What else happens during the business expansion phase?

(think of the areas of business)

Answer 11

• research
• locate new markets
• new factories, equipment, employees
• marketing
• all of these things cost a lot of money
• a lot of plannign is required
• have to predict how much money will be made when you expand

Question 12

in a large business, each ____ will be resposible for one or more budgets in his/her area of operation

Answer 12

manager

Question 13

the most important step in financial plannign is developing a ____

Answer 13

budget

Question 14

the basic financial equation is

• revenue - profit = loss
• expenses + revenue = profit or loss
• profit - loss = revenue and expenses
• revenue - expenses = profit or loss

Answer 14

revenue - expenses = profit or loss

Question 15

ongoing _____ require that employees be paid, supplies and materials ordered and buildings maintained

Answer 15

ongoing operations require that employees be paid, supplies and materials ordered and buildings maintained

Question 16

for businesss that have operated for several years, identifying sources of income and types of expenses is ____ difficult

Answer 16

NOT difficult because the business has financial records from previous years to help

Question 17

financial plan for ongoing operations of the business for a specific period

Answer 17

operating budget

Question 18

What are 3 types of budgets?

Answer 18

1. start-up budget
2. operating budget
3. cash budget

Question 19

why is it so important for a business to manage its finances?

Answer 19

• finances are a key part of the operations of all businesses
• every business activity costs money
• without careful planning and management, those costs can grow to a level where the business income cannot cover the expenses

Question 20

if revenue is greater then expenses, the business will make a _____

Answer 20

profit

Question 21

what skills and people are necessary for preparing a business budget?

Answer 21

• person that understand financial info
• computer skills
• mathematic ability
• good communication skills

Question 22

the costs of _____ are some of the highest expenses for most businesses

Answer 22

the costs of personnel are some of the highest expenses for most businesses

Question 23

what are the goals of a budget?

Answer 23

1. to determine the sources and amounts of income
2. to identify the types of expenses and predict their costs
3. to determine how income will be distributed to cover those expenses
4. to reward investors if there is a profit

Question 24

why is budgeting difficult for new businesses?

Answer 24

it’s difficult because you have no previous records to look at

Question 25

for a business to succeed, enough ____ must be available to pay all expenses

Answer 25

for a business to succeed, enough revenue must be available to pay for expenses

Question 26

how is a budget like a GPS or road map?

Answer 26

it allows you to see where you are going

ex. showing you the right turn to take

Question 27

a _____ business will have many specialized budgets

Answer 27

a larget business will have many specialized budgets

Question 28

If the financial planning for an expansion is not correct what could happen?

Answer 28

the expansion could result in large losses rather than profits and even a successful business could fail

Question 29

even profitable businesses may have times when adequate (enough) cash is not available due to high ____ or delay in receiving payment from customers

Answer 29

even profitable businesses may have times when adequate cash is not available due to high expenses or a delay in receiving customer payments

Question 30

plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable

Answer 30

start-up budget

Question 31

determine the profit or loss for following:

revenue $85,695; expenses $72,624

Answer 31

profit $13,071

Question 32

a ____ budget anticipates that cash will come into a business and that cash will be paid out during each week or month of operation

Answer 32

cash

Question 33

a cash budget can show when there is a lot of cash on hand that some of it can be ______

Answer 33

invested

Question 34

budgeting is difficult for new businesses because ______

Answer 34

no financial records exist to help as a guide

Question 35

provides detailed plans for the financial needs of individuals, families and businesses

Answer 35

budget

Question 36

Many new businesses _____ due to poor financial planning

Answer 36

many new businesses fail due to poor financial planning

Question 37

what financial questions must a new business answer?

Answer 37

• how much money will be needed to start the business?
• where will that financing come from?

Question 38

What is the basic financial equation? Why is it important?

Answer 38

• every business is guided by the basic financial equation: revenue minus expenses equals profit or loss
• the difference between revenue and expenses determines whether a business makes a profit or loss
• if revenue is greater than expenses, the business will make a profit
• if expenses exceed revenue, the business will suffer a loss

Question 39

What are managers responsible for?

Answer 39

they are responsible for the cost of the businesss they manage

Question 40

why is financial planning so important?

Answer 40

• from the first day you begin plannign the business and each day it operates, financing questions must be addressed
• even the most successsful businesses are continually active in financial planning

Question 41

what time period does a cash budget cover?

Answer 41

each week or month

Question 42

if expenses exceed revenue, the business will suffer a ____

Answer 42

loss

Question 43

a budget allows the owner to determine if the business is making progress towards its _____ destination

Answer 43

financial

Question 44

Employees are needed to do the ____ of the business

Answer 44

employees are needed to do the work of the business

Question 45

true or false

a cash budget is an estimate of the actual money received and paid out for a specific period

Answer 45

true

shows money that comes in and out

Question 46

what period of time is a start-up budget covered?

Answer 46

until the business becomes profitable

Question 47

by comparing the business’ financial performance to the budget, the owner can determine if the budget ____ are being met

Answer 47

goals

Question 48

the most important step in financial planning is developing a _____

Answer 48

budget

Question 49

What are some expenses incurred with new employees?

Answer 49

• training employees
• hiring employees
• trying to make sure employees do a good job

Question 50

provides detailed plans for the financial needs of individuals, families and businesses

Answer 50

budget

Question 51

Without careful planning and ______, costs can grow to a level where the business income cannot cover the expenses

Answer 51

without careful planning and management, costs can grow to a level where the business income cannot cover the expenses

Question 52

When a business expansion is anticipated, financial planning must be completed. What must the planning anticipate?

Answer 52

• must anticipate the costs associated with the expansion
• the source of the funds to pay for the expansion
• the source of the funds to pay for the expansion
• the expected income that will result from the new plans

Question 53

What are the 4 steps in the budgeting process?

Answer 53

1. prepare a list of each type of income and expense that will be a part of the budget
2. gather accurate info from business records and other info sources for each type of income and expense
3. create the budget by calculating each type of income, expense and the amount of net income or loss
4. explain the budget to people who need financial info to make decisions

Question 54

what are the steps in preparing a business budget?

Answer 54

• prepare a list of each type of income and expense that will be part of the budget
• gather accurate info from business records or other sources for each income and expense
• figure out net income or loss based on info gathered
• explain the budget to people how need the financial info to make decisions

Question 55

why do new businesses fail?

Answer 55

• many new businesses fail due to poor financial planning
• experts in business finance should be consulted to help the new business with its financial planning

Question 56

even though a new business might not be making a profit, it still must have enough _____ on hand to pay current expenses

Answer 56

cash

Question 57

a business must be able to identify and predict the ____ of each source of income and each type of expense

Answer 57

a business must be able to identify and predict the amount of each source of income and each type of expense

Question 58

successful businesses ____ to be able to serve more customers, reach unserved markets and sell new products

Answer 58

successful businesses expand to be able to serve more customers, reach unserved markets and sell new products

Question 59

how does a business develop its budget?

Answer 59

• the business must be able to identify and predict the amount of each source of income and each type of expenses
• in addition, the business will need to determine when each expense must be paid and when income will be received
• for business to succeed, enough revenue must be available to pay all expenses

Question 60

investing cash on hand provides another source of business _____

Answer 60

income

Question 61

all income that a business receives over a period of time

Answer 61

revenue

Question 62

what things are included in a start-up budget?

Answer 62

buildings, inventory, employees, training, supplies, utilities, transportation

Question 63

where and how do businesses gather sources of budget info?

Answer 63

• Small Business Administration (SBA)
• Dunn and Bradstreet (private business that collects and shares public business info)
• business magazines
• professional associations

Question 64

Why and when do businesses expand?

Answer 64

• successful businesses expand to be able to serve more customers, reach unserved markets, and sell new products
• expansion costs money though
• the hope is that the income generated by the expansion will be far greater than the cost
• a more profitable business is the result

Question 65

what period of time does an operating budget cover?

Answer 65

3 months, 6 months or 1 year

Question 66

an estimate of the actual money received and paid out for a specific period

Answer 66

cash budget

Question 67

What do employees do?

Answer 67

• needed to do work
• ex. walmart employees stock shelves, work the registers

Question 68

employees that are well trained, motivated and efficient will be ____ productive than those that are not

Answer 68

employees that are well trained, motivated and efficient will be more productive than those that are not

Question 69

2 main purposes of a business budget

Answer 69

1. anticipate sources and amounts of income for a business
2. predict the types and amounts of expenses for a specific business activity or the entire business

Question 70

determine the profit or loss for the following

revenue $1,824,300; expenses $2,183,680

Answer 70

loss -$362,380

Question 71

what things are included in operating budget?

Answer 71

income and expenses