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Economic and management sciences

Grade 6

The business plan

Module 10

The financial aspects of the business

This is the most important component of any business. You do want to start a business to make money, don't you? Financial planning, if done properly, should provide a very good indication of whether you will make money. Three important things have to be kept in mind concerning finances:

  • You need to know how much money will be required to start the business . How much of it are you able to provide yourself and how much will have to be borrowed? Will you have to pay interest on what you borrow, and how much?
  • You need to know whether the business will show a profit or not. This means, will the total income be bigger than total expenditure? Try to make a twelve-month projection (estimation) on a monthly basis.
  • You need to know whether you will have money coming in fast enough to be able to pay for your expenses. This is referred to as the cash flow of a business. Cash flow is not the same as profit. If you do not have enough cash, you will have a backlog that will have to be covered.
  • Start-up money (commencement capital)

Any new business needs money for starting up. It does not have to be much. Peter should have enough money for a good lawn mower and an edge trimmer only when he starts up his business.

Another business, like a car repair service, though, will need very specialised tools to be able to provide a good service.

  • Will the business be profitable?

A business plan should provide a very good indication of whether the existing or proposed business would be profitable. There is no sense in starting a business that will not be profitable!

The business plan should contain a profit estimate calculated for at least twelve months ahead.

  • Will the business generate enough money?

Do you remember that we pointed out earlier in the module that there is a difference between cash flow and profit?

The business plan should not indicate whether the business will be profitable only, but should also indicate the expected situation with regard to cash. Cash flow in a business has to do with how money comes into the business and goes out of the business.

Assignment

Let us study the following example, which illustrates these concepts very well:

Peter employs one additional worker in his lawn care business that earns R500 per month. Peter's lawn mower broke down and repairs and parts cost him R800, which had to be paid within 60 days. During the specific month, Peter expects to receive R2 500 in payment for all the lawns under his care, but he receives the money on the third day of the following month. He also had to pay R300 for fuel.

This is what the profit and cash flow situation is like at the end of the month:

PROFIT CASH FLOW
Service sales R 2 500,00 Cash in: R 0,00
Machine repairs R 800,00
Gross profit R 1 700,00 Cash out:
Salary R 500,00
Expenditure: Fuel R 300,00
Salary R 500,00
Fuel R 300,00
Total expenditure R 800,00
Nett profit:R 1 700,00 - R 800,00 = R 900,00 Cash flow:Cash in - cash out = R800,00

Therefore, although the business shows a profit of R900,00 for the month, there is a shortfall of R800,00 at the end of the particular month. The business shows a good profit, but Peter needed financing to help him with his cash flow problems.

Use the following example to draw up a profit/cash flow table:

Mr Alfa owns his own car repair business. He has two mechanics working for him. Their respective salaries are R1 800,00 and R2 600,00 per month. He buys car parts at R2 100,00, for which he has to pay within 90 days. He repairs nine cars during the month and receives R10 400,00 for his work. He receives R3 200,00 of this amount on the 10th day of the following month only.

He rents a workshop at R900,00 per month and pays an amount of R450,00 per month for his telephone and electricity bills.

PROFIT CASH FLOW
Nett profit: Cash flow:

Many profitable businesses close down simply because they cannot control their cash flow problems. A good business plan can show up these problems so that one might try to avoid them.

[LO 4.4]

SUMMARY

A GOOD BUSINESS PLAN COVERS THREE MAIN AREAS.

  1. The entrepreneur:

The business plan must indicate who the entrepreneur is and what experience he or she has. It will also indicate the entrepreneur's involvement with the business clearly, e.g. whether he/she is a sole owner, partner or shareholder.

  1. The business

The business plan must provide the name of the business, explain the nature of the business (the product or service provided to the client and how it is provided), where it is situated and why the consumer will benefit by the product or service.

It must indicate very clearly why clients would be interested in the product and why they would buy it from you rather than from your competitors. It should also provide adequate information about the potential market.

  1. Finances

This is a very important section of the business plan. The various financial statements will indicate whether there is enough money to start the business, whether it will be profitable and whether it will generate enough cash to carry it from month to month.

Now we are ready to draw up our own business plan. Decide on the nature of the business, because the next module will provide enough guidance to draw up a very thorough business plan.

Assessment

Learning Outcomes(LOs)
LO 4
ENTREPRENEURIAL KNOWLEDGE AND SKILLSThe learner will be able to demonstrate entrepreneurial knowledge, skills and attitudes.
Assessment Standards(ASs)
We know this when the learner :
4.2 identifies a variety of possible business opportunities in the community (school co-operatives, sports, entertainment, tourism);
4.3 designs an advertising campaign to promote a product that will generate a profit;
4.4 participates in a fair or market day at school or in the community to practice and apply entrepreneurial knowledge and skills;
4.5 describes how the four elements of the marketing mix are combined in a simple business activity.

Questions & Answers

how do they get the third part x = (32)5/4
kinnecy Reply
can someone help me with some logarithmic and exponential equations.
Jeffrey Reply
sure. what is your question?
ninjadapaul
20/(×-6^2)
Salomon
okay, so you have 6 raised to the power of 2. what is that part of your answer
ninjadapaul
I don't understand what the A with approx sign and the boxed x mean
ninjadapaul
it think it's written 20/(X-6)^2 so it's 20 divided by X-6 squared
Salomon
I'm not sure why it wrote it the other way
Salomon
I got X =-6
Salomon
ok. so take the square root of both sides, now you have plus or minus the square root of 20= x-6
ninjadapaul
oops. ignore that.
ninjadapaul
so you not have an equal sign anywhere in the original equation?
ninjadapaul
Commplementary angles
Idrissa Reply
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Sherica
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Sherica
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Tamia
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Uday
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Kevin Reply
a perfect square v²+2v+_
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Abdirahman Reply
algebra 2 Inequalities:If equation 2 = 0 it is an open set?
Kim Reply
or infinite solutions?
Kim
The answer is neither. The function, 2 = 0 cannot exist. Hence, the function is undefined.
Al
y=10×
Embra Reply
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Nancy Reply
rolling four fair dice and getting an even number an all four dice
ramon Reply
Kristine 2*2*2=8
Bridget Reply
Differences Between Laspeyres and Paasche Indices
Emedobi Reply
No. 7x -4y is simplified from 4x + (3y + 3x) -7y
Mary Reply
is it 3×y ?
Joan Reply
J, combine like terms 7x-4y
Bridget Reply
how do you translate this in Algebraic Expressions
linda Reply
Need to simplify the expresin. 3/7 (x+y)-1/7 (x-1)=
Crystal Reply
. After 3 months on a diet, Lisa had lost 12% of her original weight. She lost 21 pounds. What was Lisa's original weight?
Chris Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
China
Cied
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
Porter
many many of nanotubes
Porter
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Yasmin
what is the function of carbon nanotubes?
Cesar
I'm interested in nanotube
Uday
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
what is nano technology
Sravani Reply
what is system testing?
AMJAD
preparation of nanomaterial
Victor Reply
Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
Himanshu Reply
good afternoon madam
AMJAD
what is system testing
AMJAD
what is the application of nanotechnology?
Stotaw
In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
Azam
anybody can imagine what will be happen after 100 years from now in nano tech world
Prasenjit
after 100 year this will be not nanotechnology maybe this technology name will be change . maybe aftet 100 year . we work on electron lable practically about its properties and behaviour by the different instruments
Azam
name doesn't matter , whatever it will be change... I'm taking about effect on circumstances of the microscopic world
Prasenjit
how hard could it be to apply nanotechnology against viral infections such HIV or Ebola?
Damian
silver nanoparticles could handle the job?
Damian
not now but maybe in future only AgNP maybe any other nanomaterials
Azam
Hello
Uday
I'm interested in Nanotube
Uday
this technology will not going on for the long time , so I'm thinking about femtotechnology 10^-15
Prasenjit
can nanotechnology change the direction of the face of the world
Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
Ali Reply
the Beer law works very well for dilute solutions but fails for very high concentrations. why?
bamidele Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Economic and management sciences grade 6. OpenStax CNX. Sep 08, 2009 Download for free at http://cnx.org/content/col11013/1.1
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