Chapter 12.1 - financial planning Flashcards Preview

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Flashcards in Chapter 12.1 - financial planning Deck (71):
1

a cash budget will determine if a business has adequate financial resources on hand to pay bills as they become due or if they will need to ____ money

borrow

2

how is a business budget similar to a personal or family budget?

  • has same goals - spending money, where money is going and how it is coming in
  • both try to come out with a profit

3

costs of operating a business

expenses

4

to develop an effective _____, information to predict income and expenses is needed

to develop an effective budget, information to predict income and expenses is needed

5

a _____ identifies where a business is going

budget

6

true or false

financial planning is needed by a small business only until it begins to make a profit

false

 

needed by all businesses

7

what things are included in the cash budget?

sales, rent, electricity, bills, income

8

What are the 2 main purposes of a business budget?

  1. anticipate sources and amounts of income for a business
  2. predict the types and amounts of expenses for a specific business activity or the entire business

9

_____ requires an understanding of financial info, computer skills, mathematical abilities and effective communication skills

budgeting

10

when planning an _____ budget, income and expenses from previous budgets are reviewed.  planners look for possible changes that could increase or decrease income and expenses.

operating

11

What else happens during the business expansion phase?

(think of the areas of business)

  • research
  • locate new markets
  • new factories, equipment, employees
  • marketing
  • all of these things cost a lot of money
  • a lot of plannign is required
  • have to predict how much money will be made when you expand

12

in a large business, each ____ will be resposible for one or more budgets in his/her area of operation

manager

13

the most important step in financial plannign is developing a ____

budget

14

the basic financial equation is

  • revenue - profit = loss
  • expenses + revenue = profit or loss
  • profit - loss = revenue and expenses
  • revenue - expenses = profit or loss

revenue - expenses = profit or loss

15

ongoing _____ require that employees be paid, supplies and materials ordered and buildings maintained

ongoing operations require that employees be paid, supplies and materials ordered and buildings maintained

16

for businesss that have operated for several years, identifying sources of income and types of expenses is ____ difficult

NOT difficult because the business has financial records from previous years to help

 

 

17

financial plan for ongoing operations of the business for a specific period

operating budget

18

What are 3 types of budgets?

  1. start-up budget
  2. operating budget
  3. cash budget

19

why is it so important for a business to manage its finances?

  • finances are a key part of the operations of all businesses
  • every business activity costs money
  • without careful planning and management, those costs can grow to a level where the business income cannot cover the expenses

20

if revenue is greater then expenses, the business will make a _____

profit

21

what skills and people are necessary for preparing a business budget?

  • person that understand financial info
  • computer skills
  • mathematic ability
  • good communication skills

22

the costs of _____ are some of the highest expenses for most businesses

the costs of personnel are some of the highest expenses for most businesses

23

what are the goals of a budget?

  1. to determine the sources and amounts of income
  2. to identify the types of expenses and predict their costs
  3. to determine how income will be distributed to cover those expenses
  4. to reward investors if there is a profit

24

why is budgeting difficult for new businesses?

it's difficult because you have no previous records to look at

25

for a business to succeed, enough ____ must be available to pay all expenses

for a business to succeed, enough revenue must be available to pay for expenses

26

how is a budget like a GPS or road map?

it allows you to see where you are going

ex. showing you the right turn to take

27

a _____ business will have many specialized budgets

a larget business will have many specialized budgets

28

If the financial planning for an expansion is not correct what could happen?

the expansion could result in large losses rather than profits and even a successful business could fail

29

even profitable businesses may have times when adequate (enough) cash is not available due to high ____ or delay in receiving payment from customers

even profitable businesses may have times when adequate cash is not available due to high expenses or a delay in receiving customer payments

30

plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable

start-up budget

31

determine the profit or loss for following:

revenue $85,695; expenses $72,624

profit $13,071

32

a ____ budget anticipates that cash will come into a business and that cash will be paid out during each week or month of operation

cash

33

a cash budget can show when there is a lot of cash on hand that some of it can be ______

invested

34

budgeting is difficult for new businesses because ______

no financial records exist to help as a guide

35

provides detailed plans for the financial needs of individuals, families and businesses

budget

36

Many new businesses _____ due to poor financial planning

many new businesses fail due to poor financial planning

37

what financial questions must a new business answer?

  • how much money will be needed to start the business?
  • where will that financing come from?

38

What is the basic financial equation?  Why is it important?

  • every business is guided by the basic financial equation: revenue minus expenses equals profit or loss
  • the difference between revenue and expenses determines whether a business makes a profit or loss
  • if revenue is greater than expenses, the business will make a profit
  • if expenses exceed revenue, the business will suffer a loss

39

What are managers responsible for?

they are responsible for the cost of the businesss they manage

40

why is financial planning so important?

  • from the first day you begin plannign the business and each day it operates, financing questions must be addressed
  • even the most successsful businesses are continually active in financial planning

41

what time period does a cash budget cover?

each week or month

42

if expenses exceed revenue, the business will suffer a ____

loss

43

a budget allows the owner to determine if the business is making progress towards its _____ destination

financial

44

Employees are needed to do the ____ of the business

employees are needed to do the work of the business

45

true or false

a cash budget is an estimate of the actual money received and paid out for a specific period

true

shows money that comes in and out

46

what period of time is a start-up budget covered?

until the business becomes profitable

47

by comparing the business' financial performance to the budget, the owner can determine if the budget ____ are being met

goals

48

the most important step in financial planning is developing a _____

budget

49

What are some expenses incurred with new employees?

  • training employees
  • hiring employees
  • trying to make sure employees do a good job

50

provides detailed plans for the financial needs of individuals, families and businesses

budget

51

Without careful planning and ______, costs can grow to a level where the business income cannot cover the expenses

without careful planning and management, costs can grow to a level where the business income cannot cover the expenses

52

When a business expansion is anticipated, financial planning must be completed.  What must the planning anticipate?

 

  • must anticipate the costs associated with the expansion
  • the source of the funds to pay for the expansion
  • the source of the funds to pay for the expansion
  • the expected income that will result from the new plans

53

What are the 4 steps in the budgeting process?

  1. prepare a list of each type of income and expense that will be a part of the budget
  2. gather accurate info from business records and other info sources for each type of income and expense
  3. create the budget by calculating each type of income, expense and the amount of net income or loss
  4. explain the budget to people who need financial info to make decisions

54

what are the steps in preparing a business budget?

  • prepare a list of each type of income and expense that will be part of the budget
  • gather accurate info from business records or other sources for each income and expense
  • figure out net income or loss based on info gathered
  • explain the budget to people how need the financial info to make decisions

55

why do new businesses fail?

  • many new businesses fail due to poor financial planning
  • experts in business finance should be consulted to help the new business with its financial planning

56

even though a new business might not be making a profit, it still must have enough _____ on hand to pay current expenses

cash

57

a business must be able to identify and predict the ____ of each source of income and each type of expense

a business must be able to identify and predict the amount of each source of income and each type of expense

58

successful businesses ____ to be able to serve more customers, reach unserved markets and sell new products

successful businesses expand to be able to serve more customers, reach unserved markets and sell new products

59

how does a business develop its budget?

  • the business must be able to identify and predict the amount of each source of income and each type of expenses
  • in addition, the business will need to determine when each expense must be paid and when income will be received
  • for business to succeed, enough revenue must be available to pay all expenses

60

investing cash on hand provides another source of business _____

income

61

all income that a business receives over a period of time

revenue

62

what things are included in a start-up budget?

buildings, inventory, employees, training, supplies, utilities, transportation

63

where and how do businesses gather sources of budget info?

  • Small Business Administration (SBA)
  • Dunn and Bradstreet (private business that collects and shares public business info)
  • business magazines
  • professional associations

 

64

Why and when do businesses expand?

  • successful businesses expand to be able to serve more customers, reach unserved markets, and sell new products
  • expansion costs money though
  • the hope is that the income generated by the expansion will be far greater than the cost
  • a more profitable business is the result

65

what period of time does an operating budget cover?

 3 months, 6 months or 1 year

66

an estimate of the actual money received and paid out for a specific period

cash budget

67

What do employees do?

  • needed to do work
  • ex. walmart employees stock shelves, work the registers

68

employees that are well trained, motivated and efficient will be ____ productive than those that are not

employees that are well trained, motivated and efficient will be more productive than those that are not

69

2 main purposes of a business budget

  1. anticipate sources and amounts of income for a business
  2. predict the types and amounts of expenses for a specific business activity or the entire business

70

determine the profit or loss for the following

revenue $1,824,300; expenses $2,183,680

loss -$362,380

71

what things are included in operating budget?

income and expenses