2.1.4 Planning

• Planning involves identifying goals, objectives, strategies, tactics, and actions needed to achieve those goals.
• The planning process is the sequence of steps that are followed to develop a plan.
• What's the main aim of producing a business plan?


  To reduce the risk associated with starting a new business
• What is a business plan?


  A business plan is a document produced by the owner at start-up, which provides forecasts of items such as sales, costs, and cash flow
• What are the advantages and disadvantages of business planning?


  Advantages: Helps set goals, improves decision-making, increases efficiency Disadvantages: Time-consuming, can be rigid, may not account for unexpected changes
• How does producing a business plan reduce failure?

  Producing a business plan forces the owner to think about every aspect of the business before they start. The business will also be well-informed about the potential problems and chance of success and can select the most appropriate source of finance based on this information.
• What's a cash flow forecast?

  A forecast which predicts the future inflows and outflows of a business within a period of time (typically 12 months).
• A detailed business plan should include a cash flow forecast that allows the business owners to identify its financial needs.
• How do you calculate net cash flow?

  Net cash flow = total inflows - total outflows
• How do you calculate the opening balance?

  The previous month’s closing balance (its carried forward)
• How do you calculate the closing balance?

  Closing balance = net cash flow + opening balance
• What are the advantages and disadvantages of using cash flow forecasts?

  Advantages: Helps in planning and decision making, can help identify where the business may experience cash shortfalls or cash surpluses so that plans can be made to manage these periods, helps a business avoid costly mistakes

  Disadvantages: Based on estimates can be inaccurate, require appropriate skills, insight, research and time to prepare and update adequately, and external factors can impact the inflows or outflows