PLANNING AND

CASH FLOW

LO:

1. Define Business Plans and name its 6 components

2. Explain the advantages and disadvantages of Internal Finance
3. Explain the advantages and disadvantages of External Finance
 FROM THE SPECIFICATION

2.1.4 PLANNING
EDEXCEL GUIDANCE
 KEY WORDS

• It is your responsibility to
create and maintain a key
words/glossary list for this unit

• Key words must be used in

exam answers to achieve full
marks
 BUSINESS PLAN
DEFINITION

A plan for the development of a business

A Business Plan includes:
1. Financial Forecast
2. Business Objectives
3. Human Resources Information
4. Information on target market
5. Sources of finance being used
6. Premises and equipment
 BUSINESS PLAN
BENEFITS AND DRAWBACKS

Advantages Disadvantages

• Helps support applications for • Is not needed to gain all

finance  sources of finance ie:
• Forces managers and owners
to take a critical look at the
business which flags up
potential problems so that
managers can identify
solutions
• Provides an action plan which
helps the business reach its
goals and increases
motivation to achieve these
goals
crowdfunding and loans from
family and friends 
• May only need certain
elements of a business plan
and not all of it. For example,
may only need Cash Flow
Forecasts. Therefore, time may
be wasted producing a
business plan and it may not
be necessary. This  is an
opportunity cost
 CASH FLOW FORECASTS
DEFINITION

A prediction of all cash inflows and outflows

over a period of time
 CASH FLOW FORECASTS
KEY CONTENT

In flows Cash flowing into the business.

For example, bank loan and sales

Out flows Cash flowing out of the business.

For example, wages and raw
materials payments

Net Cash flow Inflow – outflow

Closing balance Opening Balance + Net Cash

flow

Opening Balance Closing balance of the previous

month
 CASH FLOW FORECASTS
A D VA N TA G E S A N D D I S A D VA N TA G E S

Advantages Disadvantages

• Helps a business identify • The cash flow forecast is a

when they have cash predication so not always accurate
shortages so they can due to new competitors,
organize a short term source machinery breakdowns etc
of finance. For example,
overdraft or trade credit • Only shows cash - does not show
the profit a business makes
• Helps support applications for
bank loans if the business can • Opportunity cost- the time spent
prove they are able to repay product a Cash Flow Forecast
the money on a monthly could have been spent elsewhere.
basis  For example, marketing/product
development etc
• Can compare with previous
years so they business can
identify when problems arose.
For example, seasonal
demand, new competitor,
changes in exchange rates
PREP