Within business planning, the business overlooks at various sections and areas about the business, When planning the business begins with a statement outlining the purpose and goals of the business and it goes on to show how the business will realise these goals it will include a detailed marketing strategy, when planning
Managers also calculate a break-even analysis, and profit and loss projection and a cash flow analysis designed to show if the business has enough money or has developed as expected. Other areas include analysing the business and its operating environment, defining its competitive advantage, positioning the business in its market, and setting appropriate financial, personnel and operational plans which help the business significantly to grow and survive as these aspects are critical in today’s business world.
There are many specific reasons for business planning:
- Deciding objectives
- Asses market demand
- Plan resource requirements
- Assess finance requirements
- Analyse likely future changes
- Summarise likelihood of success
- Set targets
- Guide day to day activates
- Describe situation of the business
- Check against targets
- Decide changes
- The plan takes many information from many sources ideas
- Industrial market research
- Customer market research
- Financial calculations
Above I talked about the financial calculation section that would be included as part of the business planning, making financial projections and calculations are considered very important within the business planning process, this aspect significantly contributes to the survival and growth of the business. For example predicting and planning business finances can show potential investors that the business idea will fly. The action of developing financial projections when business planning, including an estimate of costs, a break-even analysis, a profit-and-loss forecast, and a cash flow projection, will help decide if the business needs to rethink some of its key ideas.
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A break-even analysis: To do a break-even analysis the organisation would use there income and expense estimates to determine whether, in theory, if the business would bring in enough money to meet its costs. To see whither the company has break even.
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A profit-and-loss forecast: Next you'll refine the sales and expense estimates that you used for your break-even analysis into a formal, month-by-month projection of your business's profit for the first year of operations.
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A cash flow projection: Even if your profit-and-loss forecast tells you that your business will have higher revenues than expenses, in other words, that it will be profitable - those numbers won't tell you if you'll have enough cash on hand from month to month to pay your rent or buy more inventory. A cash-flow projection shows how much money you'll have -- or how much you'll be short -- each month. This lets you know if you'll need a credit line or other arrangement to cover periodic shortfalls.
For example when the business wants to grow and survive they will first look at there financial calculations to see where the business is in terms of finance and then they will decide and then make other calculations to see how much money will be needed for the new project or it could help them to develop better services if finances were not enough, and then this will help them eventually grow. By using calculations it will help the business in summery to see whether the business is to grow or survive and most importantly if the business will be profitable to invest in the business.
In summery business planning helps significantly and contributes massively to help the business to survive and grow as it helps the business to:
- Focus businesses attention on longer-term business goals and direction
- Identify any areas on internal strengths and weaknesses
- Identify possible threats and constraints on the business
- Identify, assess business opportunities
- It helps the business to compete in the market place (through an analysis of what the business competition lacks)
- Anticipating potential problems so the business can solve them before they become disasters.
A businesses survival can therefore be threatened by anything that might reduce its income. If sales revenue falls, because of competition or a move by consumers away from a brand, profit will also fall. This is why planning helps as it helps to aid in keeping there eye on their market, it also helps to review strengths and weaknesses opportunities and threats for the organisation in order to grow and survive.
Assess the value of cash-flow forecasts, breakeven analysis and profit and loss forecasts for firms in terms of business planning to survival and growth of organisations?
A cash flow forecast shows and indicates to the business when it is near enough critical, it shows when cash is coming in and when cash going out during a certain month. Preparing a monthly cash flow forecast provides the business with the opportunity to show figures, representing revenues and expenses, during the month of the business expects to collect and spend the cash. A cash flow forecast does not show sales estimates or overhead expenses averaged across several months.
Used properly, this will provide the business with the means to keep the business decision-making on track and will keep the inventory purchasing in control. It will also serve as an early warning indicator when the business expenditures are running out of line or when sales targets are not being met.
As the manager of the businesses cash, the business would have enough time to devise remedies for anticipated temporary cash shortfalls and ample opportunity to arrange short term investments for the business' temporary cash flow surpluses.
The completed cash flow forecast will clearly show to a bank loans officer what additional working capital, if any, the business may need, and will offer proof that there will be sufficient cash on hand to make the interest payments to support a (to cover the shortfalls). If the performance projections are realistic, they will also provide support for the feasibility of a for an equipment purchase or for a master marketing campaign.
Reliable cash flow projections can bring a sense of order to the business and will being the business a more coordinated calm approach. The most important tool businesses need to have available to control the financial aspects of their business is the cash flow worksheet.
This takes us on to the next important element within a business plan - the budgets and financial forecasts. Because money tends to be limited, it is essential that a budget and forecasts for at least the first twelve months of the business are prepared. As part of preparing these, one very important exercise businesses tend to carry out is a break even analysis- this shows the amount of business that will regularly need to be transacted in order to meet all of the business expenses but make no profit. To do a break-even analysis the organisation would use there income and expense estimates to determine whether, in theory, if the business would bring in enough money to meet its costs. It will essentially help to see whither the company has break even.
The two financial forecasts that need to be prepared, the profit and loss and cash flow forecasts, These 2 documents help the business significantly and help the business to make decisions in order to grow and to survive. If the business needs to borrow money, and as a result will have a debt to service, the Profit and Loss forecast will show whether the business can afford to do this. If, as with the majority of start-ups, the business will run at a loss for a period of time, the P&L forecast will also indicate how long this is likely to be (based upon achieving the stated sales expectations) and at what point in its development the business will breakeven. Having drawn this up, if a P&L forecast shows that the new business is not likely to breakeven until month 20,
Then at least the business will be in informed of there position and will judge the risk of committing the business life’s savings to the venture.
Having prepared a business plan, which includes customer and market research, a sales forecast, a promotional strategy, a breakeven analysis and budgets and financial forecasts, there should then be indications as to how viable the business will be, and the likely returns on any investment made.