Business 2.1.4

• What is the definition for a business plan?

  A written document that describes the overall nature of a business / how the business intends to develop
• What does a business plan contain?

  • Overview of idea / start - up
  • Product or Service
  • Objectives
  • Analysis of the Market
  • Cash flow forecast / statement of comprehensive income
  • How the business will be financed
  • Competitor analysis
  • Opportunities and threats
• How does a business plan obtain finance?

  • Determines amount / type of finance required
  • Helps investors / banks assess the risk of the business - whether they should finance
  • Demonstrate the viability
  • Demonstrate likelihood to being able to repay loan finance
  • Access more methods / sources of finance
  • The bank could agree to a lower interest rate
  • Result = investor agreeing to a smaller share
• A business plan may not be required in obtaining finance because:

  • Financial forecasts may allow investors / the bank to assess the risk level
  • Some external and internal sources of finance may not require a business plan
• Cash flow:

  • Cash flow is a dynamic and often unpredictable part of business life.
  • Cash flows into the business - customers pay for good / service, a loan is received of when assets are sold
  • Cash flows out of the business - suppliers, wages, salaries, other costs like rent and loan repayments are paid back
  • The difference between Cash inflow / outflow during a specific period = NET CASH FLOW
  • Net Cash Flow + OPENING BALANCE = CLOSING BALANCE
  • Opening balance = cash business has at the start of the month
  • Closing balance = cash position at the end of the month
• What are the uses of a cash flow forecast:

  • Identify potential shortfalls ( whether the business needs to take additional finance )
  • Ensures employees / suppliers are paid
  • Assists obtaining finance so investor confidence increases
• What are the limitations of a Cash - flow forecast?

  • Forecast estimates could be wrong = reducing reliability
  • External shocks = impact on cash inflows / outflows
  • Certain costs and expenditure missed especially in case of a start up
  • Raw material costs = higher than expeted
  • Customers may not pay on time - delaying cash inflow