Planning(2.1.4)

Question 1

Why may a business need to create a business plan?

Answer 1

planning - advertising/promotion, financial forecasts/liquidating, staff/other resources
to secure finance/investment

Question 2

What is a business plan?

Answer 2

a document produced by the owner at start up which provides forecasts of items such as costs and cash floe

Question 3

Business plan-planning

Answer 3

the main aim of producing a business plan is to reduce the risk of associated with starting a new business
producing a business plan forces the owner to think about every aspect of the business before they start which should reduce the risk of failure
it shoes potential lenders or investors that the business has done their research

Question 4

What is a cash flow forecasts?

Answer 4

a prediction of anticipated cash inflows and outflows usually for a six or twelve month period

Question 5

Cash flow forecasts-planning

Answer 5

a business plan will usually ensure one to ensure the owner identifies their possible financial needs

Question 6

Net cash floe equation

Answer 6

net cash flow = total inflows - total outflows

Question 7

Opening balance equation

Answer 7

opening balance = previous months closing balance

Question 8

Closing balance equation

Answer 8

closing balance = opening balance + net cash flow

Question 9

Cash flow forecast advantages

Answer 9

help identify cash shortfalls/surpluses so strategic actions can be efficiently placed
e.g arranging an overdraft
integral to a business plan and application for finance-useful to aid planning and avoid costly mistakes
e.g wasted resources

Question 10

Cash flow forecasts disadvantages

Answer 10

based on estimates-unreliable and realty may differ immensely
significant time effort and knowledge is needed to prepare and update a cash flow forecast-increasing costs
bias-inflating figures and making outlandish predictions
external factors are not accounted for within a cash flow forecast