2.1.4 Planning

Question 1

Business Plan

Answer 1

A document containing the strategy for the development of a firm giving details such as forecasts of revenue and sales

Question 2

Purpose of Business Plans

Answer 2

• Persuade lenders that the business will make enough profit to pay back interest and loan capital
• Provide a road map that shows the direction a firm should take to develop

Question 3

Cash Flow Forecasts

Answer 3

The prediction of all expected revenue and costs of a business over a future time period

Question 4

Advantages of Cash Flow Forecasts

Answer 4

• Supports loan applications as they give lenders an idea of a firm’s solvency
• Identifying the timings of cash flow shortages can help firms prepare and minimise impact

Question 5

Disadvantages of Cash Flow Forecasts

Answer 5

• Some figures are based on estimates and so can be inaccurate
• Business activity is subject to changes due to the external environment which are not always predictable