2.1.3 Planning

• Why is financial planning crucial when raising finance?

  Aligns with business objectives
• One key benefit of financial planning is determining the amount of finance needed
• Financial planning helps businesses minimise costs associated with raising finance.
• Match the aspect of finance raising with its type:

  Cost ↔️ Lower costs in planned finance

  Suitability ↔️ May not align with needs in unplanned finance

  Risk ↔️ Higher risk in unplanned finance
• Arrange the following financial planning methods based on their primary purpose:

  1️⃣ Budgeting (Creating a plan for income and expenses)

  2️⃣ Forecasting (Predicting future financial performance)

  3️⃣ Capital Budgeting (Evaluating long-term investments)

  4️⃣ Break-Even Analysis (Determining sales to cover costs)
• Budgeting ensures resources are allocated effectively
• Forecasting accuracy depends on the quality of past data used.
• Match the financial planning method with its drawback:

  Budgeting ↔️ Can be rigid and inflexible

  Forecasting ↔️ Depends on data accuracy

  Capital Budgeting ↔️ Requires detailed analysis

  Break-Even Analysis ↔️ Assumes fixed costs and prices
• What does break-even analysis determine?

  Sales volume to cover costs
• Financial planning ensures funds align with business objectives.
• One key benefit of financial planning is minimising the costs associated with raising finance.
• Arrange the following financial planning methods from short-term to long-term focus:

  1️⃣ Budgeting (Short-term income and expenses)

  2️⃣ Forecasting (Predicting future financial performance)

  3️⃣ Break-Even Analysis (Determining sales to cover costs)

  4️⃣ Capital Budgeting (Evaluating long-term investments)
• What is the primary purpose of forecasting in financial planning?

  Predict future performance
• Capital budgeting involves evaluating potential investments
• Break-even analysis assumes fixed costs and prices.
• What are the main methods of financial planning mentioned in the study material?

  Budgeting, forecasting, capital budgeting, break-even analysis
• Match the financial planning method with its primary benefit:

  Budgeting ↔️ Controls costs

  Forecasting ↔️ Guides decisions

  Capital Budgeting ↔️ Allocates resources

  Break-Even Analysis ↔️ Provides clear targets
• What is a key drawback of forecasting?

  Depends on data accuracy
• Capital budgeting requires detailed analysis
• Identifying short-term and long-term objectives is the first step in analyzing business needs and goals.
• Steps in analyzing business needs and goals:

  1️⃣ Identify Objectives

  2️⃣ Assess Resources

  3️⃣ Analyze Market Conditions

  4️⃣ Forecasting
• What is the goal of a new restaurant in the example provided?

  Achieve break-even in 18 months
• What are the three statements typically included in a financial forecast?

  Income statement, balance sheet, cash flow statement
• In a financial forecast, assumptions include key factors such as sales growth and inflation
• Steps in developing a financial forecast:

  1️⃣ Gather historical data and market trends

  2️⃣ Make informed assumptions about key variables

  3️⃣ Project revenues, expenses, and net income

  4️⃣ Estimate balance sheet items

  5️⃣ Calculate cash flow statement

  6️⃣ Review and adjust the forecast
• Financial forecasting can facilitate budget planning.
• What are the four primary funding options available to businesses?

  Equity, debt, grants, venture capital
• Match the funding type with its characteristic:

  Equity ↔️ Dilutes control

  Debt ↔️ Maintains control

  Grants ↔️ Restrictive

  Venture Capital ↔️ High equity stake
• Which type of funding is best suited for high-growth startups?

  Venture capital
• Financial planning aligns funds with business objectives
• Unplanned finance raising typically results in higher costs due to urgency.
• What is the purpose of analyzing market conditions in financial planning?

  Understand external factors
• Aligning financial plans with business objectives helps maximize returns
• A financial forecast includes an income statement, balance sheet, and cash flow statement.
• What are the benefits of financial forecasts?

  Guides strategic decisions, attracts investors, facilitates budget planning
• Match the financial statement component with its description:

  Income Statement ↔️ Projects revenues, expenses, and profits

  Balance Sheet ↔️ Estimates assets, liabilities, and equity

  Cash Flow Statement ↔️ Forecasts cash inflows and outflows
• Which funding option involves no repayment of funds?

  Grants
• Venture capital funding results in a loss of significant control for the business owner.
• Steps in creating a financial plan:

  1️⃣ Determine current financial situation

  2️⃣ Set financial goals

  3️⃣ Identify resources

  4️⃣ Choose financial planning methods

  5️⃣ Implement the plan

  6️⃣ Review and adjust the plan
• What is the purpose of evaluating and revising a financial plan?

  Align with business objectives