Business plans and start-up finance

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The business plan

A business plan records the idea, objectives, proposed customers, marketing, operations, staffing and finances. It helps test feasibility, coordinate action and measure progress. It should evolve as evidence or circumstances change.
It can support a lender or investor discussion by explaining the finance required and the evidence behind forecasts. A credible plan helps assessment but does not compel approval or remove business risk.

Connect a plan to its evidence

Typical contents include an executive summary, the product or service, target market, competitors, market research, marketing decisions, operational resources and financial forecasts. Choose detail appropriate to the business and any funding application.
Explain assumptions behind price, sales volume, costs and cash timing. Include risks and practical responses; compare a lower-sales scenario rather than presenting the central forecast as a promise.

Plan the initial cash requirement

Sources of start-up finance

Possible sources include owner savings, family or friends, approved bank borrowing, angels, venture capital, suitable crowdfunding and eligible grants. Match the amount, duration, repayments, ownership implications and risk to the need. A pre-trading new firm has no own retained trading profit, although an established parent may fund a new venture.
Savings risk personal funds; loans require agreed repayments and may involve interest, fees or security. An arranged overdraft allows account borrowing up to an agreed limit and may be changed under its terms. Angel and venture-capital finance usually dilute ownership; venture capital often seeks high growth.
Crowdfunding can be donation-, reward-, loan- or equity-based. Reward fulfilment costs money; debt must be repaid; equity gives ownership. Grants normally avoid loan-style repayment if conditions are met, but may restrict use and be recovered for non-compliance. None of these sources is automatically available.

Compare funding obligations

Revenue and cost

Revenue = selling price per item × quantity sold at that price. Total fixed costs do not vary with output within a stated period and range, but may change over time or with capacity. Total variable costs change with output, such as materials consumed per item.
Total costs = total fixed costs + total variable costs. If variable unit cost is supplied, multiply by output first. With £1,000 fixed and £2,000 total variable costs, total costs are £3,000. Sales revenue and cash receipts can occur at different times.

Break-even

Contribution per item = selling price − variable cost per item. With positive contribution, break-even sales = total fixed costs ÷ contribution per item. At £10 price, £6 variable unit cost and £400 fixed costs, this is 100 items. Round fractional thresholds up for indivisible items.
Margin of safety = actual or budgeted sales − break-even sales, using matching units and period. At 150 sales it is 50 items. The simple model assumes constant price and unit variable cost and fixed costs within the relevant range; sales must match any output used. Exam-board requirements differ: AQA GCSE focuses on interpreting charts rather than using this formula.

Work out break-even and profit

Profit

Profit = revenue − the relevant total costs for the same period. £5,000 − £3,500 = £1,500. Profit differs from cash available because receipts, payments and some financing transactions have different timing or treatment.
In the fictional £10/£6/£400 example, 80 sales give £800 revenue and £880 total cost, hence an £80 loss; 150 sales give £1,500 revenue and £1,300 total cost, hence £200 profit. Use these scenarios to test whether the plan remains workable if demand is lower.

Test lower sales as well as the forecast

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Soal latihan

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1.What is revenue?
Easy
- Amoney from sales
- Bmoney spent
- Cprofit only
- Dtax
2.What is a fixed cost?
Easy
- Aa cost that changes with output
- Brevenue
- Cprofit
- Da total cost that does not vary with output within a stated period and range
3.What is a variable cost?
Easy
- Arevenue
- Bprofit
- Ca cost that changes with output
- Da cost that never changes
4.What is profit?
Easy
- Asales volume
- Brevenue minus total costs
- Crevenue plus costs
- Dcosts only
5.What is a business angel?
Easy
- Aa wealthy individual who invests in start-ups
- Ba bank
- Ca customer
- Da union
6.What is crowdfunding?
Easy
- Aa bank loan
- Ba grant from the government
- Cselling shares on the stock exchange
- Draising contributions from many backers, usually online
7.What is venture capital?
Easy
- Aa wage
- Ba tax
- Cspecialist fund investment, usually in exchange for equity
- Da free grant
8.What is an overdraft?
Easy
- Aa grant
- Bborrowing through a bank account up to an agreed limit
- Ca savings account
- Da share issue

Soal lainnya

9.What is a bank loan?
Easy
- Amoney borrowed and repaid with interest
- Ba free gift
- Ca grant
- Dshares
10.Within the stated output range, which total cost is fixed?
Easy
- AMaterials used per item produced
- BPackaging used per item produced
- CSales commission per item sold
- DA flat monthly premises rent
11.Which total cost varies with the number of identical items produced?
Easy
- AA fixed annual insurance premium
- BAn unchanged monthly salary
- CMaterials used at a fixed amount per item
- DA flat monthly premises rent
12.A firm has total fixed costs of £1,000 and total variable costs of £2,000 in one period. What are total costs?
Easy
- A£4,000
- B£3,000
- C£2,000
- D£1,000
13.Revenue is £5,000 and total costs are £3,500. Profit is?
Easy
- A£1,500
- B£8,500
- C£3,500
- D£5,000
14.Price is £10 per item, variable cost £6 per item and total fixed costs £400. Using fixed costs ÷ contribution per item, calculate break-even sales.
Medium
- A40 units
- B400 units
- C10 units
- D100 units
15.Break-even sales are 100 items and actual sales are 150 items in the same period. What is the margin of safety?
Medium
- A100 units
- B150 units
- C50 units
- D250 units
16.What does break-even mean?
Medium
- Athere are no costs
- Brevenue equals total costs
- Crevenue exceeds costs
- Dcosts exceed revenue
17.What is a government grant?
Medium
- Aan award normally not repaid if its eligibility and use conditions are met
- Ba bank loan
- Can overdraft
- Da share
18.What is an executive summary?
Medium
- Athe whole plan
- Ba loan
- Ca bill
- Da short overview of the plan
19.What is a cash flow forecast in a plan?
Medium
- Aa tax form
- Ba wage list
- Ca prediction of money in and out
- Da record of past profit
20.Why include market research in a plan?
Medium
- Ato avoid planning
- Bto provide evidence about customers and potential demand
- Cto pay wages
- Dto avoid costs
21.What is a target market?
Medium
- Athe group of customers a business aims at
- Bthe whole population
- Cthe competitors
- Dthe suppliers
22.Why do lenders ask to see a business plan?
Medium
- Ato avoid lending
- Bto change the plan
- Cto avoid risk entirely
- Dto judge whether the business is likely to repay
23.Why might a start-up choose rewards-based crowdfunding?
Medium
- ATo remove the need to deliver the promised product
- BTo guarantee the funding target is reached
- CTo seek many backers without a conventional loan, while meeting reward obligations
- DTo guarantee that all campaign promises are cost-free
24.Why is break-even analysis useful?
Medium
- Ait pays suppliers
- Bit shows the output needed to cover costs
- Cit sets wages
- Dit measures tax
25.Why can a larger positive margin of safety be useful under the same break-even assumptions?
Medium
- Asales can fall further before the business reaches break-even
- Bthe firm makes a loss
- Cthere are no sales
- Dcosts are zero
26.What is the break-even formula?
Easy
- Arevenue divided by profit
- Bcosts times price
- Cprice minus profit
- Dfixed costs divided by contribution per unit
27.What is contribution per unit?
Easy
- Afixed cost minus variable
- Bprice plus cost
- Cselling price per item minus variable cost per item
- Drevenue minus fixed cost
28.For one constant selling price, revenue equals price per item multiplied by quantity sold.
Easy
True or false?
29.A flat monthly rent unchanged over the stated output range is a variable cost in that period.
Easy
True or false?
30.Break-even is where revenue equals total costs.
Easy
True or false?
31.A business plan can help raise finance.
Easy
True or false?
32.Profit equals revenue plus costs.
Medium
True or false?
33.Which could provide finance before a completely new business has begun trading? Select all that apply.
Medium
- Asavings
- Bbank loan
- Ccrowdfunding
- Dbusiness angels
- EThat new business’s own retained trading profit
34.Which are in a business plan?
Medium
- Aaims
- Bmarket research
- Ccash flow forecast
- Dmarketing plan
- Erandom thoughts only
35.Explain why a start-up needs a business plan.
Medium

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