/
AI Flashcards
Save to my account
Sign up
AI Flashcards
Financial Plan Essentials
Study
1
Question
What is the main purpose of a financial plan in a business plan?
Answer
To outline expected revenues, costs, and profits over time to guide decisions.
2
Question
What key elements should the financial plan cover for the next three years?
Answer
Projected income, expenses, and cash flow.
3
Question
Why are cash flow forecasts vital for all businesses?
Answer
They show liquidity and ability to meet obligations.
4
Question
What role do investors and banks play in financing according to the text?
Answer
They provide capital through investments and loans.
5
Question
What does the term ‘profitability’ in a financial plan indicate?
Answer
The ability to generate profits above costs.
6
Question
What is the importance of including fixed costs in the financial plan?
Answer
Fixed costs remain constant regardless of output and influence break-even.
7
Question
How are variable costs different from fixed costs?
Answer
Variable costs change with production level; fixed costs do not.
8
Question
What is meant by ‘break-even point’ in a financial plan?
Answer
The level of sales where total revenue equals total costs.
9
Question
Why should the financial plan include projections of profits and expenses?
Answer
To indicate potential profitability and cash requirements.
10
Question
What is the consequence of not managing cash flow properly?
Answer
Businesses can run out of cash and default on obligations.
11
Question
What is the relationship between revenue and gross profit in the financial plan?
Answer
Revenue minus cost of goods sold equals gross profit.
12
Question
Why is it important to include assumptions in the financial plan?
Answer
They explain the basis for forecasts and allow sensitivity analysis.
13
Question
What is the difference between fixed and variable costs with examples?
Answer
Fixed costs: rent, insurance; Variable costs: raw materials, wages linked to output.
14
Question
What does sensitivity analysis assess in a financial plan?
Answer
How changes in key variables affect outcomes.
15
Question
What are capital sources mentioned for startups in the financial plan?
Answer
Investors and banks.
16
Question
What is the purpose of including forecasted revenues in the plan?
Answer
To project future sales and assess profitability.
17
Question
What is the significance of including loans in the financial plan?
Answer
To illustrate funding obligations and repayment schedules.
18
Question
How should a financial plan indicate the profitability potential of the business?
Answer
By presenting projected profits and break-even analysis.
19
Question
What does the term ‘operating expenses’ refer to in the plan?
Answer
Ongoing costs required to run the business.
20
Question
Why are realistic forecasts necessary for proper forecasting?
Answer
To avoid overestimating revenue and underestimating costs.
21
Question
What is the meaning of ‘cash burn’ in the context of startups?
Answer
The rate at which a company spends cash before becoming cash-flow positive.
22
Question
What is the ‘runway’ in financial planning terms?
Answer
The period a business can operate before needing additional funding.
23
Question
Why should the plan discuss financial risks and contingencies?
Answer
To prepare for uncertainties and avoid ruin.
24
Question
How are financial statements used together in planning?
Answer
Income statement, balance sheet, and cash flow show performance and liquidity.
25
Question
What is the difference between revenues and profits?
Answer
Revenues are total sales; profits are revenues minus costs.
26
Question
What is the role of market assumptions in the financial plan?
Answer
They shape expected demand and pricing.
27
Question
What is the importance of forecasting for decision making?
Answer
Guides investments, hiring, and capital allocation.
28
Question
What is a cash flow statement intended to show?
Answer
Cash inflows and outflows over a period.
29
Question
Which stakeholders rely on the financial plan?
Answer
Investors, lenders, and internal management.
30
Question
How does credit policy impact the financial plan?
Answer
It affects receivables, bad debt risk, and cash timing.