1. AO1: Investigating why business enterprises plan their finances
Write a list of 10 questions a bank manager is likely to ask an entrepreneur applying for a bank loan.
Business planning

2. Business planning In this topic you will learn about
planning an enterprise:
start-up
running costs
profit
planning to meet financial objectives:
making a return for the owners of the enterprise
setting profit targets
ensuring sufficient cash resources
long term financing
Providing information to key stakeholders to enable them to make decisions about the viability of an enterprise or expansion:
owners/shareholders
potential funders
suppliers

3. What do these people all have in common? Who are they?

4. Business planning
A business plan is an important part of setting up a business
A business plan will be used both internally by the entrepreneur and externally by banks, external investors or those willing to provide grants
The contents of a business plan include:
The executive summary - a synopsis of the entire plan looking at the most important points
The business and goods or services
The market e.g. size, share, competitors
The marketing strategy
The skills of the entrepreneur and other key employees
Operations
Financial forecasts
In this unit you will be focusing on why business enterprises plan their finances.

5. Planning an enterprise
Planning an enterprise will include the need to plan finances
This will include:
Start-up cost
The costs involved in setting up the business
e.g. market research, legal advice, premises, fixtures and fittings, opening stock
Running costs
The costs of operating the business on a day to day basis
e.g. utilities, replenishing stock, wages
Profit
Profit is the surplus of revenue i.e. the money coming in from sales over the costs i.e. the money going out to fund the business activity
If a business is to survive it must plan how it will achieve a profit in the medium to long term
Why are the start-up costs for an online business likely to be lower than for a physical store e.g. a shop?
What tips does Jamal Edwards offer new entrepreneurs?

6. Planning to meet financial objectives
Financial objectives are the targets a business will set out to achieve, in terms of finance, in a given period of time
These will be included in the business plan
The entrepreneur will need to regularly review progress against these targets
Financial objectives include:
Making a return for the owners of the enterprise
The owners will have invested capital in the business and will want to be rewarded for this
The reward will come from a share of the profits
Return on an investment can be calculated as:
Operating profit/return x 100
It is likely a minimum target return on investment will have been set

7. Planning to meet financial objectives
Financial objectives include:
Setting profit targets
A minimum amount of profit to be achieved in a given time period
An entrepreneur may have an objective of survival in the short term but once established the business will need to achieve a profit at some point in the future
Ensuring sufficient cash resources
Without sufficient cash to meet day to day expenses a business will not survive
Why is cash so important?

8. Planning to meet financial objectives
Financial objectives include:
Long term financing
Planning how to finance capital expenditure i.e. the purchase of assets that will stay in the business for more than a year such as machinery, premises and vehicles
An objective may look at the percentage of long-term funding that comes from debt i.e. loans
Long-term funding that is debt is compulsory interest bearing
This means that regardless of profits interest and repayments have to be made to financial institutions
This increases the degree of risk undertaken by the business especially if interest rates start to rise
Interest represents a cost to the business
What might the financial objectives be for Airbus?

9. Planning to meet financial objectives
The proportion of long term funding that is debt
This relationship is referred to as gearing
A business can be described as highly geared if the % is thought to be high as this increases the element of risk
Calculated as:
Debt x 100
Total long term funding
Example:
Long term funding = £3.2m
Debt = £1.2m
£1.2m/£3.2m x 100 = 37.5%
Gearing is a concept you will look at in more detail in AO4.

10. Providing information to stakeholders
Stakeholders are anyone with an interest in the actions of a business
These include:
Owners/shareholders
Potential investors
Suppliers
Customers
Workers
Community
Government
Stakeholders can be categorised as:
internal or external
primary or secondary
Primary stakeholders have a direct relationship with the business whereas secondary stakeholders, although affected by the actions of a business, are not directly related to the business.

11. Providing information to stakeholders
A business plan can provide valuable information to stakeholders e.g. profit forecasts, worth of the business, target market, how loans will be repaid and how investors will be rewarded
This enables stakeholders to make decisions about the viability of an enterprise or expansion
Owners/shareholders
Forecast return on investment
How to fund expansion
Potential cash-flow problems
Potential funders
Weigh up different investment opportunities
Degree of risk
How profits will be achieved
Suppliers
Whether to offer credit and if so on what terms
Potential future business
Influence pricing decisions

12. Challenge
In this first topic you have already been introduced to a lot of terminology
In pairs take it in turns to explain the following terms to each other
Business plan
Start-up costs
Running costs
Profit
Entrepreneur
Financial objectives
Long term financing
Debt
Stakeholders
Suppliers
Credit

13. Business planning In this topic you have learnt about
planning an enterprise:
start-up
running costs
profit
planning to meet financial objectives:
making a return for the owners of the enterprise
setting profit targets
ensuring sufficient cash resources
long term financing
Providing information to key stakeholders to enable them to make decisions about the viability of an enterprise or expansion:
owners/shareholders
potential funders
suppliers