1.4.4b Role of a business plan in minimising risk and obtaining finance Quiz: Pearson Edexcel Business, Unit 4

The 20 questions

1. How does a business plan help to minimise risk?

   • By removing the need for the owner to borrow any money at all
   • By guaranteeing that sales targets will be met in every month of the first year
   • By transferring all business risk to the bank that approves the plan
   • By testing assumptions about demand, costs and cash before money is committed

2. Why do banks usually want to see a business plan before lending?

   • To decide which of the owner's relatives should be given a job at the bank
   • To ensure the business will be listed on the stock exchange within a year
   • To confirm that the owner has no other sources of income at all
   • To check that the business can repay the loan, using realistic forecasts

3. Which of these is a way a business plan helps a business to obtain finance?

   • It shows investors that the owner has researched the market and planned the use of money
   • It means investors never need to see the business's accounts again after investing
   • It allows the owner to avoid giving any information about the business to investors
   • It promises investors a fixed return of 20% a year whatever happens to the business

4. A business plan forecasts that a new product will not break even for 18 months. What is the benefit of identifying this in the plan?

   • The owner can arrange enough cash or finance to cover losses in that period
   • The owner can ignore costs for 18 months and spend freely on advertising
   • The owner can avoid all future planning once the business starts trading
   • The owner can guarantee that the bank will approve any loan requested

5. Which risk is a business plan most likely to reduce?

   • The risk of the owner's car breaking down on the way to work each morning in winter
   • The risk of the owner's personal property value falling in the local housing market
   • The risk of a change in the government's national sports policy for schools
   • The risk of starting a business with insufficient cash to cover early costs

6. A business has a plan showing forecast sales of £200,000 but actual sales are £120,000. What is the most useful next step?

   • Increase advertising by £200,000 to make the forecast come true
   • Stop trading immediately, because a plan with any gap is always a failure
   • Ignore the plan and continue as before, since plans are never accurate
   • Review the assumptions behind the forecast and adjust costs or sales plans

7. Which of these is a limitation of a business plan?

   • It has to be approved by the local council before any trading can begin
   • It stops the business from being affected by changes in the economy
   • It can only be written by a qualified accountant with a degree
   • It is based on forecasts, so the outcome may differ from what was planned

8. Why might investors ask to see a business plan's marketing section?

   • To judge whether the business understands its customers and how it will reach them
   • To confirm the business will never change its prices in the future at all
   • To check the owner's personal social media passwords and login details for security
   • To find out which competitor has offered the business a job in its sector

9. Which of these describes a benefit of planning for a business before it trades?

   • It helps the owner avoid costly mistakes by thinking through the whole operation
   • It guarantees that competitors will not enter the market
   • It makes the owner immune to any changes in customer tastes
   • It means the owner does not need to read any reports after the business starts

10. A business plan shows its monthly cash outflows exceed inflows in months 1 to 4. What should the owner do?

    • Ignore the shortfall because profit will appear in the plan from month one onwards
    • Arrange short-term or long-term finance to cover the cash shortfall in those months
    • Cancel the business because a plan with any cash shortfall is always a failure
    • Pay all suppliers early to reduce the shortfall in the first month of trading

11. How does a business plan help a business to attract finance from investors?

    • It proves the business will never need any further finance in the future at all
    • It promises to give investors a share of the owner's personal savings and assets
    • It shows the expected return on investment and how the money will be used
    • It shows the owner's home address and family details to prove stability

12. Which of these is a risk that a business plan can help to identify early?

    • The business being unable to find a job-share partner for the owner
    • Insufficient demand for the product at the planned price
    • A change in the weather in a country that the business does not trade in
    • A delay in the delivery of the owner's own vehicle for the first week

13. Why is it useful for a business plan to include a range of scenarios?

    • It removes the need to forecast sales or costs at all, because the scenarios replace the detailed forecasts
    • It guarantees the owner will achieve the best scenario in every case, so no other outcome needs planning for
    • It helps the owner prepare for both better-than-expected and worse-than-expected outcomes
    • It means the bank will not ask any questions about the business, since the scenarios answer every concern

14. A business plan does not identify any sources of finance. What is the main risk?

    • The business will be exempt from paying tax on all its sales
    • The business may not be able to raise the money needed to start and run
    • The business will not need to make any profit to remain legal
    • The business will automatically receive a government grant to cover all its costs

15. Which of these is most likely to make a business plan more convincing to a bank?

    • A plan that is kept short with no financial information included at all
    • Realistic forecasts supported by market research and clear assumptions
    • Optimistic forecasts with no supporting evidence or research behind the figures
    • A plan that focuses only on the owner's personal career history and past jobs

16. Which of these shows a business plan being used to minimise risk after the business has started?

    • Comparing actual results with forecasts each month and acting on significant differences
    • Throwing the plan away once the first customer has been served, since it has done its job by then
    • Setting a new aim every day without any reference to the plan or the forecasts it contains
    • Keeping the plan private so that competitors cannot read it, even though managers never refer to it

17. A business plan forecasts a profit of £25,000 but the cash-flow forecast shows a shortfall of £10,000 in month 3. Why is the cash-flow forecast still important?

    • Because the business does not need to plan for profit once it has a cash surplus
    • Because cash-flow forecasts replace the profit forecast entirely in every business plan
    • Because banks only ever check cash-flow forecasts and never read the profit forecast
    • Because cash must be available when bills fall due, even if the business is profitable overall

18. Which of these is an advantage of having a written business plan rather than a verbal plan?

    • It can be shared with banks and investors and used to track progress against targets
    • It removes the need for the owner to make any decisions once the plan is written down
    • It allows the business to avoid all taxes on profits in future years of trading
    • It guarantees the business will receive a grant from the local council each year

19. What is the main purpose of a sales forecast within a business plan?

    • To calculate the owner's personal income tax bill for the coming financial year
    • To list the names of all the staff who will be hired in the first week of trading
    • To estimate the amount of revenue the business expects to earn over a set period
    • To set the business's legal structure as a sole trader or limited company

20. A business plan states it will break even in year two. What does this mean?

    • In year two, the business is expected to double its prices to cover its rising costs
    • In year two, total revenue is expected to equal total costs, so there is no profit or loss
    • In year two, the business is expected to pay all of its debts in full and then close down
    • In year two, the business is expected to stop selling its main product line altogether

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