Understand why businesses plan

• What is the primary purpose of business planning?


  To create a structured approach to growth and manage finances
• How does a business plan reduce the risk of failure?

  By providing clarity on what the business must achieve and how
• What are common reasons for business failure?

  • Flawed business plans
  • Poor financial control
  • Lack of market knowledge
  • Lack of a unique selling point (USP)
  • Concentration risk
• What can happen if a business underestimates costs?

  It may face financial issues early on
• Why is poor financial control a risk for businesses?

  It can lead to overspending or cash flow struggles
• What is the consequence of lacking market knowledge?

  A business may fail to attract and retain customers
• What does a lack of a unique selling point (USP) result in?

  Difficulty in standing out and appealing to customers
• What is concentration risk in business?

  Relying heavily on one customer or supplier
• How does planning help in developing business ideas?

  It helps explore and refine ideas for new products or services
• What are sources of business ideas?

  • Problem-solving
  • Innovation
  • Accidental discovery
  • Ideas from people
• What is an example of a business founded to solve a common issue?

  Uber and Airbnb
• How did Tesla create a new market?

  By introducing electric cars
• What led to the creation of Post-It Notes?

  A failed adhesive experiment
• How does 3M encourage innovation among employees?

  By allowing them to spend time on independent projects
• How does planning help businesses avoid unnecessary risk?

  By anticipating potential challenges and avoiding high-risk decisions
• What are the attitudes to risk in business?

  • Risk-takers: Willing to take substantial risks for high rewards
  • Risk-averse: Prefer a cautious approach to avoid significant financial loss
• How does planning help manage uncertainty?

  By preparing for worst-case scenarios and creating backup plans
• What is the purpose of setting objectives in business?

  To give direction and motivation
• What are the types of business objectives?

  • Financial goals
  • Operational goals
  • Long-term goals
• What is an example of a financial goal?

  Increasing sales by 10% in a year
• What is the definition of savings in the context of internal finance?

  Personal funds invested by the business owner
• What is an advantage of using personal savings for business finance?

  No interest or repayments required
• What is a disadvantage of using personal savings?

  Limited to the owner’s personal savings
• What are reserves in business finance?

  Profits retained in the business instead of distributed
• What is an advantage of retaining profits as reserves?

  Helps build a financial cushion for future investments
• What is a disadvantage of accumulating reserves?

  It takes time and may not be sufficient for immediate needs
• What is an overdraft in business finance?

  An agreement with a bank to withdraw more than is available
• What is an advantage of an overdraft?

  Provides quick cash for short-term needs
• What is a disadvantage of an overdraft?

  High-interest rates and potential cancellation by the bank
• What is trade credit?

  An arrangement to pay for goods after receiving them
• What is an advantage of trade credit?

  Allows businesses to generate revenue before paying for goods
• What is a disadvantage of trade credit?

  Delayed payment can damage supplier relationships
• What is a credit card used for in business finance?

  For smaller, short-term purchases
• What is an advantage of using a credit card?

  Convenient for minor expenses and short-term borrowing
• What is a disadvantage of using a credit card?

  High-interest rates if not paid on time
• What is a loan in business finance?

  Borrowed money from a bank or financial institution
• What is an advantage of a loan?

  Predictable repayment schedule
• What is a disadvantage of a loan?

  Interest increases overall cost
• What is a mortgage?

  A long-term loan for purchasing property
• What is an advantage of a mortgage?

  Allows property ownership with manageable payments