ACC/ACF1200 Self-study questions SOLUTIONS

Topic 8 – Business Planning

Question 1

List and describe the different types of potential audience for a firm’s business plan.

At the broadest level an audience will either be internal or external, beyond that, students should be describing the
audience in terms of their motive for reading the plan and of course the motive for showing them the plan. These
broad considerations will determine the level of detail and the amount of commercially sensitive material disclosed.
Internally focussed plans tend to have more focus on operations and on tactical marketing strategy whereas
externally focussed plans are in the most part aimed at attracing some form of financial support or some required
regulatory approval.

Typical internal audiences include partners (owners); existing investors; employees (senior management and/or all
employees) and sometimes even the extended family members where they have an interest in the business. External
audiences include banks; venture capitalists, other public and private investors as well as external parties that
provide assistance to the business. These ‘other’ assistance providers can be government agencies or not-for-profits
that need to see a well documented plan is in place before committing funds and resources.

There are several individuals, groups or organisations to which the plan may be addressed.

Some specific explanations of the document perspective and motives include:

 The firm’s owners — who will want to clarify the goals of the venture, expected return, risk factors, etc.
 Firm employees — who will want to know how the business is (or should be) structured, and the roles and
responsibilities of staff members within it.
 External investors (such as venture capitalists or business angels) — who will want to know how the business
is set up, the expected financial commitment being sought from them, and their eventual return on
investment.
 External lenders (such as banks or finance companies) — like other external investors, they will want to
know the amount of funds being sought, as well as the security being offered and the firm’s ability to service
the debt.
 Government agencies — if financial or other assistance is being sought.
 Business advisers — this will help the adviser understand the business’s current and future activities, and
make their own contribution more relevant.

Question 2

‘The disadvantages of preparing a business plan outweigh the advantages.’ Do you agree with this statement?
Explain your reasons.

Students should outline the various advantages of a business plan (such as more complete information gathering,
balanced decision making, and assistance in raising finance) and the disadvantages (i.e. skewed information seeking,
incorrect assumptions, time consuming, inflexibility and unrealistic expectations for the plan) before agreeing or
disagreeing with the statement.

Question 3

Why measure organisational performance?

Organisational performance is measured to ascertain the achievement of the organisation’s goals.

Question 4

What is the balanced scorecard framework?

The balanced scorecard framework is a performance framework that helps organisations focus on key performance
indicators across four perspectives. The four perspectives are financial, customer, internal operations and innovation
and improvement. The framework describes a need to balance financial measures with non-financial measures and
to include both short-term and long term measures.

Question 5

Chee Incorporated
(a) ROI = profit/investment = $80 000/$200 000 = 40%
(b) RI = profit – (charge for capital × investment)
= $80,000 – (20% x $200,000)
= $40,000

Question 6

Phones Accessories Tablets

ROI $2,255/$40,000 $8,880/$12,000 ($1,485/$23,000)
= 5.64% = 74% =(6.46%)

RI $2,255 – (5% x $8,880 – (5% x ($1,485 – (5% x

$40,000) $12,000) $23,000)
= $255 = $8,280 = ($2,635)

Based on the calculations, the best performing division is sales of accessories evidenced by the highest ROI and
residual income.