3.1.6 - Business planning

• What is a business plan?

  A written document describing a business
• Why must business plans be updated?

  As the business changes or grows
• What are the purposes of business planning?

  • Provides focus on the business idea
  • Tests financial viability of the idea
  • Clarifies thoughts and identifies gaps
  • Raises finance from outside providers
  • Provides a logical structure
  • Measures actual performance
• What are the advantages of business planning?

  • Reviews ideas for profitability
  • Provides a profitable future
  • Helps secure finance from lenders
  • Reduces risk of failure with market research
• What are the disadvantages of business planning?

  • Plan may be of poor quality due to inexperience
  • Expensive and often repetitive
  • Requires time and effort
  • New opportunities may be missed
• What should be included in a business plan?

  A description of the proposed business
• What are the objectives and key targets in a business plan?

  Sales, profit, and growth
• What is a cash flow forecast?

  A projection of cash inflows and outflows
• How can businesses limit the risks of business planning?

  By researching the market thoroughly
• What is profit maximization in business planning?

  • Aim to make as much profit as possible
• What does market share refer to?

  • Proportion of total market sold by the business
• What is the definition of fixed costs?

  Costs that do not change with output
• What are variable costs?

  Costs that change with output
• What is profit in a business context?

  The money left after paying business expenses
• What is the formula for total cost?

  Total cost = fixed costs + variable costs
• What is the formula for profit?

  Profit = revenue - total costs
• What is the formula for average cost?

  Average cost = total cost / number of units
• If the selling price is £120 and variable costs are £12, what is the profit per unit?

  £108
• If a business has fixed costs of £150,000 and variable costs of £12 per unit, what are the total costs for 200,000 units?

  £3,150,000
• What is the revenue if 200,000 units are sold at £20 each?

  £4,000,000
• If total costs are £2,550,000 and revenue is £4,000,000, what is the profit?

  £1,450,000
• What is shareholder value?

  To increase the share price or pay high dividends to the company's shareholders
• How do we calculate variable costs?

  variable cost per unit x output (the product)
• What is the formula for revenue?

  Selling price per unit x quantity sold
• What is the formula for profit per product?

  Selling price - total cost
• What is total cost?

  all the cost coming into the business (total fixed costs + total variable costs)
• How are you going to get those 7-9s in your subjects

  Stay organised, consistent, focused, disciplined and positive!
• What is (sales) revenue?

  Value of sales coming into the business
• Info that should be in a business plan...

  • the idea - simple desciption of the business
  • where the idea came from
  • objectives & key targets
  • market overview
  • finance required
  • how the business will operate
  • cash flow forecast
• How do we limit the risks of business planning?

  • Research the market thoroughly
  • Talk to experts and consultants
  • Plan for a variety of outcomes
  • Regularly review and update the plan