Chapter 29- Planning

Question 1

Business Plan

Answer 1

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

Question 2

A Business Plan Helps to:

Answer 2

• Force owners to take an objective look at the business idea
• Provides a road map that shows clear direction for the development
of the business
• Provide an action plan that identifies key tasks that must be
undertaken
• Flag up potential problems in advance

Question 3

A Business Plan Contains:

Answer 3

• An Executive Summary- briefly describes opportunity to be exploited,
marketing and sales strategy, operations and finance.
• The Business Opportunity- Description of the product range, quantity
sold and estimated price
• Buying and Production- Where supplies etc. will come from
• Financial Forecasts- Sales forecast, cash flow forecast, profit and loss
and break even
• The Business and its Objectives- Name, address, legal structure, aims
and objectives
• The Market- size of potential market and customer demographic etc.
• Personnel- who and how many employees you will have
• Premises and Equipment – the premises to be used, equipment
which needs to obtained and financed

Question 4

Cash Flow Forecasts

Answer 4

Predication of all expenditure and income of the business over a future period of time which shows an expected cash balance at the end of each month

Without cash a business cannot trade, experts suggest that 20% of business failures are due to poor cash flow – even when trading conditions are good, businesses can fail – A business must ensure that it has enough cash to pay staff wages and bills when they are due.
One way for a business to help control is cash-flow forecasts is to plan ahead by producing accurate cash-flow forecasts

Cash flow forecasts lists all the likely receipts and payments over a future period of time – all the entries in the forecast are estimated because they have not occurred yet. The forecast shows the planned cash flow of the business month by month.

Question 5

Cash Flow Forecasts Advantages-

Answer 5

• Identifying cash shortages- You can see when you may not have
enough cash so plan a point at which it may be sensible to borrow
cash
• For Loans- Banks sometimes require documents showing what you
expenditure will be etc.
• Enhancing the planning process – Careful planning in business is
crucial – producing a cash-flow forecast is a key part of the planning
process because it is a document concerned with the future
• Monitoring- Businesses can compare expected values with real
values and see where they are going wrong

Question 6

Cash Flow Forecasts Disadvantages-

Answer 6

• They are just estimating- It may be misleading – even under normal
conditions it is very difficult to predict sales revenue for a future time
period – it has to estimated – it is also difficult to estimate future
costs – particularly variable costs.

• Mainly Down to External Forces- They may be wrong – changes in
factors such as interest rates, the state of the economy, government
legislation, exchange rates, competition and consumer tastes have an
impact on business costs and revenue

• It Only Focuses on Cash- It doesn’t take into account assets etc.

Question 7

Finance

Answer 7

where will the finance come from, how much etc

Question 8

Cash Inflows

Answer 8

the flow of money into a business

Question 9

Net Cash Flow

Answer 9

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

Question 10

Solvency

Answer 10

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