Financial Planning & Forecasting

    Cards (78)

    • What is one aim of budgeting for a business?
      Planning: Helps plan future activities
    • What does the expenditure budget indicate?
      How much a business intends to spend
    • What does the revenue budget indicate?
      How much a business expects to earn
    • What does an adverse variance indicate in revenue budgets?
      Lower than budget
    • What does a favourable variance indicate in expenditure budgets?
      Lower than budget
    • What is the variance for ticket sales if the budget is 11000 and actual is 12500?
      1500 Favourable
    • What is the variance for labour if the budget is 5500 and actual is 6000?
      500 Adverse
    • What is the variance for maintenance if the budget is 2300 and actual is 4000?
      1700 Adverse
    • What is the variance for marketing if the budget is 500 and actual is 500?
      0 Favourable
    • What are cash inflows?
      Money coming into the business
    • What are cash outflows?
      Money going out of the business
    • Give two examples of cash inflows.
      Sales revenue, loan proceeds
    • Give two examples of cash outflows.
      Rent, utility bills
    • What is positive liquidity?
      Enough cash to pay off short-term debts
    • What is negative liquidity?
      Not enough cash to pay off short-term debts
    • What is the difference between sales and purchases?
      Sales: Selling goods/services; Purchases: Buying goods/services
    • What are the different types of cash inflows?
      1. Sales
      2. Rent received
      3. Loan proceeds
    • What are the different types of cash outflows?
      1. Taxes
      2. Salaries/wages
      3. Return bank loans
    • What is a cash flow statement?
      An actual record of cash inflows and outflows
    • What is a cash flow forecast?
      An estimate of future cash inflows and outflows
    • What are the two main purposes of cash flow forecasting?
      1. Ensures enough cash to meet obligations
      2. Plans for unexpected shortfalls or surpluses
    • What are the benefits of cash flow forecasts?
      • Maintains suitable cash flow for expenses
      • Identifies potential cash flow issues early
      • Enhances ability to secure financing or investments
    • What are the risks of not using cash flow forecasts?
      • Unexpected cash shortages
      • Missed growth opportunities
      • Potential damage to business reputation
    • What are the eight methods to improve cash flow problems?
      1. Speed up invoicing and collections
      2. Negotiate better payment terms with suppliers
      3. Reduce unnecessary expenses
      4. Offer discounts for early payments
      5. Improve inventory management
      6. Secure line of credit
      7. Lease rather than buy equipment
      8. Increase sales through promotion
    • What are the potential negative impacts of cash flow solutions?
      • Reducing customer credit terms: May reduce sales
      • Using cheaper supplies: Potentially lower quality product
      • Raise prices: Risk of losing customers
      • Laying off workforce: Reduced productivity
      • Sell inventory at lower prices: Lower profit margins
      • Delay expansion plans: Missed growth opportunities
      • Delay payments to suppliers: Damage to supplier relationships
    • How do you calculate sales revenue?
      Quantity x Price
    • How do you calculate total costs?
      Total fixed costs + Total variable costs
    • What is the break-even point?
      The point where a business makes no profit or loss
    • What is the break-even formula?
      Fixed costs / (Sales revenue - Variable costs)
    • What is the margin of safety?
      The difference between gross revenue and break-even point
    • How do you calculate the margin of safety?
      (Actual sales - Break even sales) / Actual sales
    • Why is the fixed cost line horizontal?
      It stays the same throughout
    • Why does the total cost line start at fixed costs?
      Fixed costs exist even with no production
    • Why does total revenue start at 0?
      Product may not be sold at all
    • What should be the label on the x-axis of a break-even chart?
      Quantity
    • What should be the label on the y-axis of a break-even chart?
      Revenue
    • What happens to break-even and margin of safety with an increase in sales?
      • Break-even: No direct effect
      • Margin of safety: Increases
    • What happens to break-even and margin of safety with a decrease in sales?
      • Break-even: No direct effect
      • Margin of safety: Decreases
    • What happens to break-even and margin of safety with an increase in price?
      • Break-even: Decreases
      • Margin of safety: Increases
    • What happens to break-even and margin of safety with a decrease in price?
      • Break-even: Increases
      • Margin of safety: Decreases
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