Planning 2.1.4

Question 1

Define planning.

Answer 1

A document setting out what the firm does and what it wants to achieve.

Question 2

What role does a business plan play in raising finance?

Answer 2

• Helps finance providers assess the business model.
• Provides a benchmark against which progress can be measured.
• Determines the amount and type of finance required.
• Provides a structured assessment of the opportunities and risks.
• Essential analysis of the competitive position of the business and the market attractiveness.

Question 3

What are the key contents of a business plan?

Answer 3

Business model.
Product and market positioning.
Management team.
Financial forecast.
Investment requirement.

Question 4

What does a business plan provide for others?

Answer 4

Helps potential leaders and investors get a feel for what the business wants to gain and achieve.

Question 5

What is a cash flow forecast?

Answer 5

Month by month prediction of timings expected with cash inflows/outflows.

Question 6

Why are cash flows important?

Answer 6

• Cash is king- it is the lifeblood of a business.
• It’s a business runs out of cash it will almost certainly fail.
• Few businesses have unlimited finance – cash is limited, so it needs to be managed carefully.

Question 7

Why should a business produce a cash flow forecast?

Answer 7

• Advanced warning of cash shortages.
• Make sure that the business can afford to pay for supplies and employees.
• It’s got problems with customer payments.
• An important part of financial control.
• Provide reassurance to investors and lenders that the business is being managed properly.

Question 8

What are cash inflows?

Answer 8

Gained from sales and any income into the firm.

Question 9

What are cash outflows?

Answer 9

Payments for materials, labour and rent etc.

Question 10

What is the opening balance?

Answer 10

Money in the bank at the first day on the month.

Question 11

What is total cash flow?

Answer 11

Money entering the firm.

Question 12

What is total cash outflow?

Answer 12

Money leaving the business

Question 13

What is the equation for net cash flow?

Answer 13

Cash inflows - Cash outflows

Question 14

What are 3 uses of cash flow forecasts?

Answer 14

• Investment opportunities
• Identifies potential shortfalls of cash balances- may need to go to a debt facility.
• Make sure the business can afford to pay its suppliers and employees.

Question 15

what are 2 limitations of cash flow forecasts?

Answer 15

• Can quickly become inaccurate when there are changes in the environment such as economic.
• May be biased and estimates- only as useful as the data shows.