Unit 29 - Planning Flashcards
Def: business plan
A plan for the development of a business giving details such as the product to be made resources needed and forecast such as costs revenue and cash flow
Def: cash flow forecast
The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month
Def: Cash flow
The flow of money into a business
Def: cash outflow
The flow of money out of a business
Def: net cash flow
The difference between the cash flowing in and the cash flowing out of a business in a given time period
Def: solvency
The degree of to which a business is able to meet at debts when they fall due
Def: short fall
Any financial obligations are liability that is greater than the cash on hand required to satisfy that obligation
Benefits of business plan
Forces owners to take an objective look at the business idea
Shows clear directions for the development of the business
Provide an action plan that identifies key tasks that must be undertaken
Flags up potential problems in advance
Helps show lenders and investors that the owner is cautious responsible,
Contents of a business plan
An executive summary
Business opportunity
Buying and product production
Financial forecast
Business objectives
The market
Personnel
Premises and equipment
Finance
What’s in a cash flow forecast
Cash inflow/ outflow (income and expenditures)
Total cash outflow
Net cash flow
Opening and closing balance
How to calculate net cash flow
Total cash income - total cash expenditure
How to calculate closing balance
Net cash outflow + opening balance
Closing balance of one month becomes opening balance of the next
How to identify negative numbers / short fall
() - RED
Use of cash flow forecasts
Identify the timing of cash shortages and surplus is
Supporting applications for finance
Enhancing the planning process
Monitoring cash flow
Limitations of cash flow forecast
The information is based on estimation
Business activity is subject to external
forces so cannot be controlled or predicted
A business uses resources in preparing a cash flow forecast
Cash flow forecast do not focus on other important factors such as profit
productivity and profit margins
They only show a short term forecast
