Mod 3

Question 1

What are the components of a business plan?

Answer 1

1 . Description of the business

2. Marketing Plan
3. Operating Plan
4. Environmental Management Plan
5. Financial Plan

Question 2

What are the purposes of a business plan?

Answer 2

1. Helps an entrepreneur visualise and organise the business and its operations
2. Business plan serves as a benchmark to measure the actual performance of a business
3. Helps an entrepreneur obtain financing

Question 3

How does a business plan help an entrepreneur obtain financing?

Answer 3

Business plans are for investor reference to help them decide whether or not to invest or loan money. Investors and creditors consider:

a. Level of risk
b. Returns

Question 4

What is in the description of a business?

Answer 4

1. The organisation of the business
2. Its product or service
3. Its current and potential customers
4. Its objectives
5. Where it is located
6. Description of important people - owners, significant investors, influential employees

Question 5

What is the marketing plan?

Answer 5

The marketing section of a business plan shows:

1. How the business will make sales
2. How it will influence and respond to market conditions.
3. Any market research that has been conducted

Question 6

What are the components of a marketing plan?

Answer 6

1. Evidence of demand for the business’s products or services (market research)
2. Current and expected competition
3. Relevant government regulations
4. Marketing strategy
5. Predicted growth (sales forecast)

Question 7

What is the operating plan?

Answer 7

An operating plan outlines the activities to reaching company goals

Question 8

What are the components of an operating plan?

Answer 8

1. A description of the relationships among the business
2. Its suppliers and its customers
3. As well as a description of how the business will develop, service, protect and support its products or services.
4. Other influences on operations
   - availability of employees
   - concerns of special-interest groups
   - regulations
   - impact of international trade
   - need for patents, trademarks nad licensing agreements

Question 9

What is the environmental management plan?

Answer 9

The environmental dimension of sustainability concerns an organisation’s impacts on living and non-living natural systems, including ecosystems, land, air and water.

Question 10

What is environmental disclosure?

Answer 10

A form of corporate responsibility to the society as a result of activities which emerging a negative impact on the environment.

Question 11

What are the components of an environmental disclosure?

Answer 11

1. Performance related to inputs (e.g. material, energy, water) and outputs (e.g. emissions, effluents, waste).
2. Performance related to biodiversity and environmental compliance
3. Other relevant information such as environmental expenditure and the impacts of products and services.

Question 12

What is the main problem of environmental management accounting?

Answer 12

Lack of a standard definition of environmental costs.
For example, waste disposal costs or investment costs, and sometimes external costs (i.e. costs incurred outside the company, mostly to the general public, such as greenhouse gas emissions).

Question 13

What is the public sector role in environmental management?

Answer 13

The public sector comprises organisations that are owned and operated by the government, and that provide services for its citizens. They do not strive to make a profit and have in place several rules and regulations requiring organisations within it to report on their environmental impact and costs.

Question 14

What is an example of a regulation requiring organisations to report their environmental impact and costs?

Answer 14

A recent tool available for organisations to assist them in complying with these statutory requirements is an environmental management system (EMS), a structured system or management tool designed to help an organisation reduce its negative impacts on the environment and improve its environmental performance.

Question 15

What is a Financial Plan?

Answer 15

The purpose of the financial plan section is to identify the business’s capital requirements and sources of capital, as well as to describe the business’s projected financial performance.

Question 16

If a new business was making a financial plan, what else would they include in their financial plan?

Answer 16

1. The business’s beginning financial activities

2. Start up costs

Question 17

What are the steps for determining capital requirements?

Answer 17

1. Determine the resources needed eg. buildings, equipment, furniture
2. Determine the capital needed to acquire the resources eg. sales agreements, cost quotations
3. Analyse the business’s projected cash receipts and payments
4. Determine available cash and any need for borrowing

Question 18

What are the differences sources of capital?

Answer 18

1. Short term capital - repaid in less than a year
2. Long term capital - repaid in more than a year
3. Private placements - securities sold directly to private individuals or groups (investors)
4. Public offerings - issuing bonds or shares to the public through securities firms or investment bankers

Question 19

What are the steps in projecting financial performance?

Answer 19

1. The data you use should be as reliable as possible
2. Consider several scenarios because predicting a business’s financial performance is uncertain
3. Revise your projections as more facts become available
4. Ensure that the financial plan is consistent with the information in the other sections of the business plan
   eg. Plans to advertise should be shown under the financial plan section for advertising costs

Question 20

What is CVP Analysis?

Answer 20

CVP Analysis estimates how changes in a company’s cost, both fixed and variable, sales volume, and price affect a company’s profit.

Question 21

Why does CVP analysis break costs into fixed and variable?

Answer 21

It gives companies strong insights into the profitability of their products or services.

Question 22

What are fixed costs?

Answer 22

Fixed costs are constant in total for a specific time period – that is, they are not affected by differences in volume during that same time period.

Question 23

What are variable costs?

Answer 23

A variable cost is constant per unit of volume, and changes in total in a time period in direct proportion to the change in volume.

Question 24

What is the relevant range?

Answer 24

the range of activity levels over which the particular (fixed) cost behaviour pattern remains valid.
For example, if we lease the retail space only large enough to stock between 50 and 200 coffee gift packs, then the rent cost will be fixed at $660. But if Café Revive needs to stock more than 200 gift packs, then it will need to lease other premises for $1980; hence, when volume is outside the relevant range, the fixed rent cost will be different.

Question 25

What is total cost?

Answer 25

Sum of fixed cost and variable cost at a specific volume.

total cost = fixed cost + variable cost per unit*sales volume

Question 26

What is the formula for net income?

Answer 26

Net income = total revenues - total expenses

Question 27

What is the formula for profit?

Answer 27

Profit = Unit sales volume*(Selling price per unit-variable cost per unit) - total fixed costs

Question 28

What is solvency?

Answer 28

The ability for a firm to meet its short term and long term obligations and debts.

Question 29

Why is CVP analysis important?

Answer 29

It gives strong insights into a firms profitability

Question 30

What does the slope/gradient of the revenue or cost line tell us?

Answer 30

The slope of the line is the rate (selling price per unit) at which the total revenues increase each time the business sells another unit.

Question 31

What does the contribution margin show?

Answer 31

It indicates how a particular product contribute to the overall profit and how far it is from the break even point.