Planning And Cash Flow

Question 1

What is cash flow?

Answer 1

Flow of money into and out of a business in a given time period

Question 2

What is a business plan?

Answer 2

A document setting out the strengths, aims and strategies of a business

Question 3

Business plan sections

First 1/2

Answer 3

1) Business overview e.g background/history
2) Description of product/ service and USP
3) Business strategy e.g short term/ long term aims
4) Marketing e.g include market research and info about your target market

Question 4

Business plan sections

2nd half

Answer 4

5) Management and personnel e.g skills and experience of yourself and key members of your team
6) Operations e.g what productions facilities/equipment you’ll need?
7) Financial information e.g sales/ profit forecast, break even
8) Evaluation e.g include SWOT analysis

Question 5

What are the 4 P’s?

Answer 5

Produce
Price
Place
Promotion

Question 6

What is SWOT?

Answer 6

Strengths
Weaknesses
Opportunities
Threats

Question 7

Benefits of a business plan

Answer 7

• Reduced risk to bank of giving loan
• Improves chances of getting bank loan , Venture capital or selling shares
• May reduce interest rate, or equity you have to offer

Question 8

Limitations of a business plan

Answer 8

• Business plan is forward looking and therefore cannot be absolutely guaranteed
• Predictions may not be accurate as markedly conditions may change significantly (e.g new competitors, starting up or changes in economy)
• Particularly inaccurate in a dynamic market

Question 9

Where do you get information for a business plan?

Answer 9

• Market research (asking friends or potential customers)
• Government statistics
• Newspaper settings
• Experts (e.g small business advisors, accountants, back managers and government agencies)

Question 10

What is cash outflow?

Answer 10

Money going out of the business (e.g payments to suppliers, rent, loan payments)

Question 11

What cash inflow?

Answer 11

Money coming into the business

E.g sales, capital invested, interest payments received

Question 12

How to find net cash flow?

Answer 12

Total cash inflows - Total cash outflows

Question 13

How to find the closing balance?

Answer 13

Opening balance + net cash flow

Question 14

Importance of cash flow

Answer 14

• Later becomes payment for things jay make your business run: expenses like stock or raw materials
• Improves profitability and reduces the risk to which the firm is exposed
• Keeps the business operating and growing

Question 15

What does cash flow enable the business to do?

Answer 15

• Anticipate timings and amounts of any cash shortages
• Review timings and amounts of recipes and payments
• Guide the firm towards action if a business looks like it is going to run out of cash
• Arrange financial cover for any shortages

Question 16

Limitations of cash flow forecasts

Answer 16

• Only estimates: a range of external factors can affects accuracy (ER, Innovations, inventions reduce demand)
• Impossible to forecast every cost: unexpected expenditure
• Should be used as a working tool: should be monitored regularly and updated to take in account changing external circumstances

Question 17

Reasons for poor cash flow

Answer 17

• Expenses being too high
• Unexpected increase in interest rate
• Investing too much in fixed assets
• Holding too much stock
• Seasonal fluctuations
• Using too much credit

Question 18

Improving cash flow

Answer 18

• Chase those people who owe you money
• Cut down “outflows”
• Increase cash “inflows”
• Delay payments to suppliers
• Debt factoring (selling debt to a 3rd party, to release cash now)
• Bank loan
• Overdraft