Planning

• What is a business plan?

  A document containing a business's strategy
• How does a business plan help reduce investor risk?

  It organizes the business and forecasts cash flow
• How can a business plan assist in obtaining loans?

  It persuades banks of repayment ability
• What is a cash flow forecast?

  It shows predicted cash inflows and outflows
• What were the cash inflows for November?

  £11,000
• What were the cash outflows for January?

  £8,000
• What does a negative net cash flow indicate?

  Cash outflows exceed cash inflows
• How can a business improve cash flow in January and February?

  By reducing cash outflows or increasing sales
• What is the formula for net cash flow?

  Total cash inflows - total cash outflows
• What is the opening balance for March?

  £3,000
• What does the closing balance represent?

  Cash at the end of the month
• What are the uses of a cash flow forecast?

  • Identify cash shortages
  • Compare to financial objectives
  • Assist in obtaining loans
• What are the drawbacks of a cash flow forecast?

  • Potential bias in estimates
  • Predictions may be inaccurate
  • Time-consuming to create and update
  • Prone to mistakes by inexperienced owners
  • Accuracy decreases over time
• Why might a business overestimate cash inflows?

  To appear more viable to investors
• What can affect the accuracy of a cash flow forecast?

  Unforeseen events like extreme weather
• What is a potential consequence of mistakes in a cash flow forecast?

  Reduced accuracy of the forecast
• How does time affect the accuracy of a cash flow forecast?

  Accuracy decreases as time goes on