Planning Flashcards
What is a business plan
• It is how an business owner will explain how they will turn their idea into a successful business
• The owner may then show the plan to a bank or another investor to ask for finance to help the business grow and expand
Why does a business write a business plan
To persuade lenders that the business will make enough profit to be able to pay back interest and loan capital on any finance taken out
• Attract potential investors to the business
• To give the owners some direction – once a plan is written down it is more likely to be followed
What’s included in a business plan
• A cash flow forecast on the plan will show the expected income and expenditure of a business over the coming year
• Cash flow forecast will help to show a bank that the interest rates can be afforded on any finance that they borrow
Steps that go into a business plan
A. Name of the business
B. Product or service and the market it is aimed at
C. 4 Ps of marketing; product, price, place and promotion
D. Human resources; who will be working there, managers, owners etc.
E. Production costs and potential suppliers of materials
F. Premises and how it will be financed; rent, mortgage, bought outright, leased from council
G. Financial information; projections on revenue, costs and profits
Purpose of a business plan
- To help set up a new business
- To help the business raise finance
- To help the business to set objectives
- To outline how functions of the business will be organised
How to help set up a new business
✓Human resources; For example the staff needed for a clothes shop
✓Equipment; For example scissors and a sewing machine
✓Raw materials; for example cloth or lace
✓Technology: for example the till or business computer
✓Vehicles; for example the company va
How to help the business raise finance
✓A business plan may help to persuade lenders that the business will make enough profit to be able to pay back interest and loan capital on any finance taken out
✓A business plan should include a cash flow forecast and sales forecasts
How to help the business raise finance by negotiating
✓A business plan may help the business to negotiate a lower rate of interest on a bank loan
✓Alternatively the business plan may help the owner to negotiate a lower percentage of equity to the venture capitalists or angel investors
How to help the business set objectives
✓A business plan can show how a business aims to achieve its goals
✓For example it may show any planned activities of the business e.g. a launch night for a new restaurant
✓It should also show any potential investors what amount of sales and profit
Smart objectives to help business
• A business plan should set targets (SMART) and objectives that can be followed for the business
• The business owner can then monitor if they are meeting their objectives
• The business plan may also set out how the company aims to grow and develop in the future
Functions for how a business will be organised.
Production
Marketing
Purchasing
Human Resources
Accounting and Finance
What is cash flow forecast
• A cash flow forecast is the day-to-day running of a business budget
• A cash flow forecast will show where the business will have a shortfall of cash (not enough to pay their short- term bills)
• Allows the business to organise short- term cash borrowing to cover the shortfall e.g. an overdraft
What is cash inflow
Cash into the business appears at the top of the cash flow forecast
• This is called income
• The income of a business is most likely to be sales revenue – this is the money that has come in from customers (imagine a full cash tin or cash register)
Cash outflow
• Cash outflow is the cash that is being spent in the business
• This is known as expenditure
• This will be on bills such as: wages, insurance, advertising etc.
• Imagine a shop paying the window cleaner cash from the till
Opening and closing balances
Notice on a cash flow that the balance closing at the end of one month is the opening at the start of the following month
