S2 financial planning Flashcards
(15 cards)
What is financial planning?
The process of forecasting future financial performance to ensure business goals are met and to avoid financial problems.
What is a sales forecast?
A prediction of future sales volume and revenue over a specific period, based on market research and trends.
Why is sales forecasting important?
It helps businesses plan production, staffing, cash flow, and inventory-reducing uncertainty and risk.
What is revenue?
The total income a business earns from selling its goods or services.
Formula: Revenue = Price x Quantity Sold
What are fixed costs?
Costs that do not change with output, e.g, rent, salaries, and insurance.
What are variable costs?
Costs that vary directly with output, e.g. raw materials and packaging.
What is total cost?
The sum of fixed and variable costs.
Formula: Total Cost = Fixed Costs + Variable Costs
Define breakeven point.
The level of output where total revenue equals total costs— no profit, no loss.
Breakeven formula (in units)?
Breakeven = Fixed Costs + Contribution per Unit
Where Contribution = Selling Price - Variable Cost per Unit
What is margin of safety?
The amount by which actual or forecasted sales exceed the breakeven level.
Formula: Margin of Safety = Actual Sales - Breakeven Sales
What is a cash flow forecast?
A prediction of a business’s cash inflows and outflows over a period, helping avoid liquidity issues.
What does ‘net cash flow’ mean?
The difference between total inflows and total outflows.
Formula: Net Cash Flow = Inflows - Outflows
What are budgets used for?
Planning future spending, controlling finances, setting targets, and measuring performance.
Name 3 types of budgets.
Income (revenue) budget, expenditure (cost) budget, and profit budget.
What are the benefits of budgeting?
Helps control costs, improve decision-making, motivate staff, and monitor business performance.
