Accounting: Chapter 5

Help you stay on-track with ______________ goals \n

Important to set personal financial goals!

Long Range

Benefit is increasing in the detail provided \n

Benefit to ________________ data, understand WHY

Disaggregated

Forces you to ____________ on an on-going basis

Think Ahead

Helps to evaluate ___________________ \n

Evaluate budget variances after-the-fact

Prior Performance

In case of _______, large cost if you run out of cash \n

Business: planning financing in advance is critical \n

Personal: interest rates on credit cards are very high

Defecit

Less ___________ w/ salary than business revenue \n

Overall: less exposure to environmental uncertainties \n

Difference in risk tolerance: one benefit firms provide \n

Fewer assumptions to make, easier to make forecasts

Uncertainty

No ____________ costs \n

No second party w/ incentive to build “fat” in budget \n

You must hold yourself accountable to the budget

Agency

Cash basis vs. __________ basis accounting \n

Notice I used the term “expenditures,” not expenses \n

No need for separate personal cash budget

accural

No control over ___________ returns (market risk)

investment

One of the ways that organizations __________ is through the introduction of new programs, \n projects, and other ventures

prosper

A business plan is a document that provides the \n information needed to determine whether the \n venture is likely to _______________________

fail or succeed

A business plan should help you assess whether the proposed venture is ___________, whether it fits the organizational ___________, and whether it will be financially __________

sensible;

\
mission;

\
viable

To discover weaknesses and eliminate bad proposals at an ________________

early stage

To support the idea with ____________ instead of merely opinion; is this a good idea?

evidence

To help to ____________ what we do and do not know about the venture

Clarify

To provide a basis to identify and analyze elements of a proposal that are ____________ to its success

Critical

To convince others (e.g., our boss or investors) that the idea is a good one, worthy of __________________

financial support

What is the venture that is being proposed?

Business Question

Why would our organization want to do it? How \n does it connect to our _________________?

**Strategic plan**

\
Who will we provide products or services for? \\n •How much will potential customers pay? \\n •How many potential customers are there?

What will our share of the market be? (That is, \n who will our _________________ be?)

competitors

Market analysis must be conducted to assure that there exists some ________ for the \n product/service \n

Will customers pay the price we want to charge?

Demand

Will existing or potential competition will make it too difficult to gain adequate ________________?

\
\n What does the competition look like? What are our strengths and weaknesses relative to them? \n

If there isn’t any current competition ... why? \n

Will competition arise if we are successful?

Market Share

How will we gain our desired market share? \n

A proactive __________________ is essential

marketing plan

It is important to determine whether the proposed venture is expected to be financially ___________ \n

Typically forecast both the future profits and cash flows

Feasible

____________ forecasts require that we anticipate: \n

Demand and prices \n

Start-up lag (will take time to get organized) \n

Growth rates (once organized and customers find us) \n

Seasonal factors

Revenue

Also forecast the expected _________ costs, capital __________ needs, and ongoing __________ costs \n

Include both direct production costs and also indirect costs such as marketing and administration

start-up;

\
equipment;

\
operating

We forecast both expected profits and cash flows

Why do we need to project cash flows?

It is possible for a profitable venture to fail because it ______________ of cash

runs out

The more successful the new venture is, the more likely it requires large amounts of cash for continued investment during the _____________

growth stage

Therefore, the business plan must:


1. Anticipate how long it will take the venture to achieve
profitability and
2. Estimate how long it will take until it achieves a level
of ______________________

positive cash flow