E 2.1.4 Planning*

Question 1

business plan definition

Answer 1

a document setting out a business idea and showing how it is to be financed, marketed and put into practice

Question 2

benefits of business plans

Answer 2

+ gives consideration to potential problems
+ provides a clear direction for the development of the business
+ provides clear targets to improve the chances of success
+ can be used to judge success
+ may also allow a business to get cheaper long term finance because if cash flow forecast shows that loan repayments can be made successfully and on time, then the business could get a loan at a lower rate of interest
+ if the business plan shows that the business would be highly profitable, then investors may be happy to accept a smaller share of the business.

Question 3

a good business plan consists of:

Answer 3

a business plan is very important for businesses trying to obtain external sources of finance.
> a good plan is well thought through with plenty of research and helps to convince potential investors that there are low risks of business failing
> it includes how profitable a business expects to be and when, so potential investors know when they could start seeing returns on their investment.
> a good business plan gives the business access to a wider range or sources and methods of finance as more people may be willing to offer the business finance

Question 4

negatives of a business plan

Answer 4

• a business is not required to have one by law
• owners can never be 100% certain of their decisions and fortunes when starting a business, BUT the the depths of the business plan reduces risk related to unforeseen problems and poor decision making.