N4 BUSINESS IN ACTION/N5 UNDERSTANDING BUSINESS HOW DO SMALL BUSINESSES OPERATE BUSINESS PLANNING

LEARNING INTENTIONS AND SUCCESS CRITERIA LEARNING INTENTIONS: I understand the concept of business planning and why it is important to the success of a business. SUCCESS CRITERIA: I can describe the situations when a Business Plan is necessary I can describe the headings used in a Business Plan I can describe the information that will be included under each heading in a Business Plan I can explain the use of a Cash Budget I can explain the meaning of Break-Even Point. I can distinguish between a Cash Surplus and Profit.

WHAT IS A BUSINESS PLAN? A business plan is a document which outlines the aims of a business and how it intends to achieve those aims. They are used mainly when starting out in business. It is also likely to be used to convince investors, for example a Bank Manager, to lend the business cash in order to get it started. The Business Plan can also be used when planning for expansion.

WHY IS A BUSINESS PLAN NECESSARY? You need to find out if it is financially viable (wise) to actually set the business up in the first place. You will need to work out all your costs and carry out market research on potential customers to find out if sales income will be enough to cover these costs and earn profit. Banks and other lenders are more likely to lend to entrepreneurs who have been thorough in their planning and research.

WHAT INFORMATION IS IN A BUSINESS PLAN? General Details – the name and type of business, proposed location and what it is going to produce/provide. The Market – who are the potential customers and competitors? Human Resources – who will be employed and work for the business? Finance – what are the expected costs of running the business, what sales income is expected and what is the expected profit? Also where is the start-up cash coming from, ie, all from the owner/s or partially from a loan? What is the Break-Even Point.

TASK Open up Worksheet 12 to see a basic Business Plan and answer the questions based on this.

THE CASH BUDGET This is an important calculation for planning how much money you will have coming into and going out of your business in future periods. This will allow you to predict how much external finance you will need and what your break-even point will be.

CASH BUDGET EXAMPLE Open up the spreadsheet document entitled Cash Budget (incl Break-Even Calculation). Your teacher will explain this to you.

TASK Using the idea for a business of your own which you created in Homework 4, complete the Business Plan Template, Cash Budget/Break-Even calculation and Profit spreadsheets in the BUSINESS PLANNING FOLDER which is within the WORKSHEET FOLDER.