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Identify and explain the four basic financial statements that an entrepreneur should prepare as projections in preparing their business plan.
i. Sales mix forecast
ii. Cash flow forecast
iii. Profit and Loss forecast
iv. Balance sheet ( or statement of financial position)
Explain the notion of Return on Equity (ROE),
including identifying the formula for calculating ROE.
- ROE is the key variable in determining whether or not such an investment is worthwhile and the key variable that potential investors look for. The general rule is that you will invest in a business opportunity is
- the expected rate of return is greater than the opportunity cost of capital.
ROE (single year) = (profit before tax/equity) x 100
Why is it important for an entrepreneur to calculate a forecast of ROE before making the
decision about whether or not to pursue that business idea?
- The general rule is that you will invest in a
- business opportunity is the expected rate of return is greater than the opportunity cost of capital. If the business is going to take a large amount of time to be profitable it is likely that the idea is not viable
Why is it of value for an entrepreneur to prepare a business plan?
- Serves as an assessment tool for the
- business (feasibility analysis).
- Provides a clear statement of the direction
- and purpose of the proposed business,
- Provides holistic perspective on the firm
- (consistency across all aspects of the business)
- Basis for getting the business up and
- running (actions needed, organising tool).
Key document for securing finance.
- Enables close scrutiny of the opportunity
- by others.
- Important document for creating
Roadmap for growth of the business.
- Bench marks for ongoing evaluation of the
How would you answer someone who said that there is no point in an entrepreneur preparing a business plan because the research indicates, in the main, that having a business plan does not increase the likelihood of a small business
- That they are perhaps mislead, yes there may be no statistical link, however as previously mentioned there are many advantages to
- preparing a business plan. And even though an entrepreneur seeking to start a small business may not prepare a business plan in the traditional sense they would likely set out strategic considerations concerning the manner in which the business will operate.
Why is having a business plan not necessarily a guarantee the business will be successful?
- Having a business plan will not guarantee a
- business’s success because the business plan may not be any good or even though the entrepreneur or owner has a business plan it doesn’t mean that they have the skills and knowledge to properly implement the plan and manage the business. A plan cannot eliminate uncertainty (unforseen events).
What, typically, are the key components of a business plan?
- Operational issues (how is the business
- going to produce its product)
- Marketing issues (how is the business going
- to market its product)
- Finance issues (how is the business going
- to finance its operations)
typical structure of a business plan?
- Title page, executive summary, description of the proposed business, marketing plan, operations plan, financial projections and
- analysis, management/organizational plan, critical risk and contingency plans,
- implementation structure and milestones, appendices.
Why is it important for businesses to set goals?
- i. To direct all organizational
- work towards a common and unified pupose
- ii. To act as targets for
- motivating people
- iii. To serve as criteria against which work accomplishments, and the accomplishments
- of the business as a whole, are measured.
What are the characteristics of “good goals”? (Be sure to clearly explain these characteristics and why they are important.)
- The goals that a firm sets need to be
- effective, credible and meaningful.
- Written in terms of outcomes instead of
Measurable and quantifiable
Clear as to a time frame
Challenging but attainable
Communicated to all organizational members
Critically assess the following statement:
“It is important for an entrepreneur to develop a vision for their business and to record this vision in the form of a Vision Statement”
- Vision will be helpful in determining an appropriate strategy for the business, provide direction for decision making and can be a source of motivation and perseverance. A vision statement is a statement of the entrepreneur’s ultimate vision for what he/she wants his/her organisation to achieve. While these statements may be useful in
- some businesses there is no point is formulating a vision statement just for the sake of it. It will not increase the likelihood of business success. Some statement s are pure fluff and as such are completely useless.