1.6 Business planning

1.6 Business planning

1. What is a business plan?

   • A document setting out what a business does and what it wants to achive
   • Business plans are needed to know the risks before it starts, provide clear targets, get data, make better decisions. To raise finance, investors like banks will want estimates of costs, sales, profits and how it will attract customers and to easily set targets and aims

2. Revenue

   • The income that a company receives from selling its goods or services

3. Fixed costs

   • Costs that do not change when a business changes its output

4. Uncertainty

   • Occurs where there’s a lack of information about a situation; this means the outcome or consequences are very difficult to predict

5. Variable costs

   • Costs that vary directly with the businesses level of output. The more things you sell, the higher your costs will be, however, with fixed costs, they always stay the same

6. Total costs

   • Fixed costs plus variable costs

7. Problems of business planning

   • Uncertainty- e.g. a new competitor may enter the market after sales have been projected in the business plan. Lack of experience. Change- if the plans are not regularly reviewed and updated then the plan is of little value in setting objectives.

8. Costs

   • Profit= revenue - total costs
   • Revenue= number of units/products sold x selling price
     • E.g. if sales of a product were 500 and each product was at £3: Revenue= 500 x £3 Revenue= £1,500