Pearson Edexcel Business IAS

Pearson Edexcel Business IAS Complete Revision Notes Unit 2: Managing Business Activities (Paper/Unit code: WBS12 CHAPTER 23: PLANNING I. Business plan A plan for the development of a business, giving details such as the products to be made, resources needed & forecasts such as costs, revenues & cash flow. Initially, new businesses will create a plan to follow butchanges in external factors will lead to changes in business plans. Business plan is a written document by the business regarding its operations. II. Relevance of a Business Plan A business plan is needed to support applications for finance, both at the start-up stage & in the future. Lenders & other investors are not likely to put moneyinto a business unless the owners can provide a clear, concise vision of futureprogress & profitability. In particular, investors will want to know how their money is going to be spent &when & how they are going to benefit from their investment. III. Uses of a business plan 1. To show a clear direction for the development of a business. 2. Help show lenders & investors that the owner is cautious, responsible, serious &credible. 3. To flag up potential problems in advance so that investors are aware & solutionscan be found. When the business creates a business plan, they can see the potentialproblem in advance & find solution. e.g., If the business decided to expand in the future, then they will have to increase their production. The problem is the source of finance. As a result, theycan think of in advance where they will get the finance. IV. Contents of a Business Plan 1. An executive summary-usually business plan is very lengthy. So, there should bea summary of the whole business plan included on the business plan itself. 2. The business opportunity-a description of the product/ range of products to bemade, the quantity to be sold & the estimated price. 3. Financial forecasts-It must be written in the business plan the cash outflows &inflows. e.g., sales forecast, cash flow forecast 4. The business & its objectives-the name of the business, its address, its legalstructure & its aims & objectives. 5. Personnel-who will run the business, how many employees. 6. Finance-where the finance to start up & run the business will come from. 7. Premises & equipment-premises to be used, equipment which needs to beobtained & financed. Business plan is: o Mainly created by the owner o For future use 2 Internal Finance-money generated by the business/its current owners. Retained profit-is the profit after tax (corporation tax) that is put back into business & not returned to the owners. CHAPTER 24: INTERNAL FINANCE I. The need for finance Firms need money to get started. They might need to buy equipment, rawmaterials & obtain premises. However, business is a continuous activity & money flowing in may use to buy more raw materials & settle other trading debts. If the owner wants to expand,which means larger premises, more equipment & extra workers. A business will need to find a way of raising finance. II. Types of Internal Finance 1. Owner’s Capital In most cases, a business cannot start unless the owners provide capital of their own. Providing capital is part of the risk taken by entrepreneurswhen setting up a business. Owners provide capital from their own personal resources. A common source is personal savings. Some entrepreneurs have deliberately saved upover a period of time so that they can start their own business. Personal savings would be an appropriate source of finance for a soletrader/partnership. 2. Retained profit Retained profit is when dividends (profit of shareholders) are not returned to shareholders &are reinvested into the business. If retained profit is used by the business, shareholders will not object even they will not be receiving their dividends because if it is reinvested again in the business then they will be receiving higher dividend/ profit in the future. Retained profit is a flexible source of finance. It does not have to be used immediately. It can be accumulated by a business in a bank account where it will earn interest. A business can then use the retained profit at alater date. If a business does not make a profit, retained profit is not possible as a source of finance. 3. Sale of assets Asset sales can be used by all businesses, as long as they are not a start-upbusiness (since the business will have no assets.)