Business and Personal Finance Unit 5 Chapter 17 © 2007 Glencoe/McGraw-Hill
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Chapter 17
Developing a Business Plan
What You’ll Learn
 Section 17.1
• Discuss the importance of financial management for
a business.
• Explain the components of a business plan.
• Describe the aspects of a financial plan.
 Section 17.2
• Explain the importance of accounting in financial
management.
• Identify the primary functions of accounting.
Business and Personal Finance Unit 5 Chapter 17 © 2007 Glencoe/McGraw-Hill
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Business Plan
 Q: My older sister and I are running a very successful
business making children’s birthday cakes. Since we are
already doing well, why do we need a business plan?
 A: Just because your business is successful now does not
mean that it will remain successful. By creating a business
plan, you can define clear goals for things like sales and
profitability that will help you keep your business on track.
Your business plan can help you to assess how inflation
may affect your business over time.
Go to finance07.glencoe.com to complete the Standard &
Poor’s Financial Focus activity.
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Section 17.1
A Plan for Business
Main Idea
What might be
included in a
business plan?
For a business to thrive, a sound business plan
and an understanding of financial management
are essential.
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Section 17.1
A Plan for Business
free enterprise
system
an economic system
in which people can
choose what they
buy, what they
produce and sell,
and where they
work
profit
the amount of
money earned over
and above the
amount spent to
keep the business
operating
The Business Environment
Businesses in a free enterprise system must
compete to attract customers.
One of the main measurements of success for a
business is the amount of profit it generates.
To survive, businesses must:
 Operate at a profit with effective financial
management
 Attract and keep individuals who will run
the business
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Section 17.1
A Plan for Business
business plan
a written proposal
that describes a
new business and
strategies to
launch that
business
Developing a Business Plan
Whether you are starting your own business or
taking over a family business, you must first
develop a business plan.
A business plan helps you focus on:
 What you want to do
 How you will do it
 What you expect to accomplish
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Section 17.1
A Plan for Business
strategic plan
a written outline of the
business goals and the
steps to take to achieve
them
marketing plan
a written outline of how
the business will be
promoted to increase
customers and sales
Components of a Business Plan
Three basic parts of a business plan focus on:
 A strategic plan
 A marketing plan
 A financial plan
financial plan
a written outline of how
the business will get
money to start up and
operate, and how the
business will maintain
financial operations and
business records
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Section 17.1
A Plan for Business
The Strategic Plan
Every person and every business needs:
 Goals
 A specific course of action to achieve
those goals
The first step in writing a strategic plan is to set
goals.
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Section 17.1
A Plan for Business
Setting Goals
Goals for businesses have the same guidelines
as goals you might establish for your personal
finances:
 They should be realistic.
 They should be specific.
 They should have a clear time frame.
 They should help you decide what type of
action to take.
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Section 17.1
A Plan for Business
Identify Steps to Achieve Your Goals
When developing a strategic plan for your
business, you should:
 Identify your short-term and long-term
goals.
 Create a plan that consists of specific
steps toward each goal.
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Section 17.1
A Plan for Business
The Marketing Plan
A marketing plan outlines the ways in which you
will promote your business. Promotional
activities include:
 Advertising
 Promotions
Promotion is any form of communication a
business uses to inform, persuade, or remind
people about its products or to enhance its
image.
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Section 17.1
A Plan for Business
Questions about Your Marketing Plan
Some of the questions you will need to address
about your marketing plan are:
 If you have something to sell, how do you
sell it?
 How do you reach people in an efficient
manner?
 What promotions or advertising can you
afford?
To begin to answer these questions, you should
research the existing market for your goods or
services.
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Section 17.1
A Plan for Business
The Financial Plan
Sound financial decisions provide the
opportunity for:
 Sales to rise
 Expenses to fall
 Profits to increase
 Assets to be acquired
 Liabilities to be paid
 Credit to expand
 Customers to increase
 New products to develop
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The Advertising Dollar
Many businesses, large and small, plan to spend a certain
amount of their budgets (about 5 percent or more of their net
sales) on promotional activities, such as advertising
promotions. This expense pays off with more customers and
profits.
If a surf and skateboard shop earns $35,000 a month in net
sales, what might be a good annual advertising budget for the
store?
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Section 17.1
A Plan for Business
Aspects of a Financial Plan
A financial plan outlines the essential financial
elements for starting and running a business.
An effective plan addresses three aspects of
operating your business:
 Assets needed
 Purchasing methods
 Daily financial operations
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Section 17.1
A Plan for Business
Purchasing Assets
Even in personal finances, if you are purchasing
an expensive item, you should consider some of
the following questions:
 Do you really need it?
 What is the most you can spend?
 How much money do you have right
now?
 Is there anything else you might need?
By considering these questions, you are
performing a financial analysis of your purchase.
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Section 17.1
A Plan for Business
Recording and Reporting Business Finances
The recording and handling of financial
information is essential. You will need to:
 Use accepted accounting procedures.
 Analyze financial statements.
 Control cash.
 Pay debts.
Thousands of small businesses close each year
due to poor financial decisions.
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Section 17.2
Financial Management
Main Idea
What do you think
the term cash flow
means?
To ensure effective financial management,
knowledge and skills in accounting are
essential.
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Section 17.2
Financial Management
Aspects of Financial Management
You should have the financial knowledge and
skills to be able to:
 Collect financial data.
 Summarize financial data.
 Analyze financial data.
Sound financial management is critical to the
survival of any business.
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Section 17.2
Financial Management
accounting
the systematic
process of
recording and
reporting the
financial position
of a business
transaction
any activity that
has an effect on
the financial
situation of a
business
Accounting: The Backbone of
Financial Management
Accounting:
 Plays a vital role in the day-to-day
activities of every business
 Is often referred to as the “language of
business”
Your business’s financial position depends on
the transactions that occur in the daily operation
of the business.
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Section 17.2
Financial Management
generally
accepted
accounting
principles
(GAAP)
a standard set of
guidelines for
recording and
reporting financial
changes in a
business
GAAP
Using generally accepted accounting principles
(GAAP) allows investors, banks, suppliers, and
government agencies to make comparisons of
the financial condition of various companies.
GAAP allows you to determine which
businesses:
 Are financially stable
 Have the highest percentage of profit
 Are growing the fastest
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Section 17.2
Financial Management
budget
(business)
a formal, written
statement of
expected income
and expenses for
a future period of
time
Budgeting
One important function of accounting is
budgeting. Budgeting will:
 Give you a glimpse into the financial
future of your business
 Provide the information you will need to
make decisions
You should regularly compare a budget with
actual income and expenses.
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Section 17.2
Financial Management
merchandise
the goods
retailers buy with
the intent to resell
to customers
inventory
the merchandise
retailers have for
sale
Inventory
The largest asset of many businesses is the
merchandise they have on hand to sell.
By tracking inventory, businesses know the
following facts about their merchandise:
 Amount of merchandise sold
 Merchandise that is selling well
 When to reorder merchandise
 Merchandise that should not be
reordered
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Section 17.2
Financial Management
Payroll
Payroll is usually the largest expense of a
business. Efficient payroll management involves
two important activities:
 Determining number of employees
 Using GAAP
Because payroll involves so much cash, it is
regulated by state and federal laws.
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Section 17.2
Financial Management
cash flow
the amount of
cash that is
available at any
given time
negative cash
flow
a condition in
which a business
spends more
money than it
receives
Cash Flow
A goal of effective financial management is to
maintain a constant cash flow through the
business. This is not always easy to do, since:
 Economic and financial conditions
constantly change.
 Expenses may vary.
When you have a negative cash flow, your
business will suffer.
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Section 17.2
Financial Management
Investments
Successful businesses invest for the future.
Reserve cash may be needed to:
 Purchase new equipment.
 Relocate the business operation.
 Sell a new line of merchandise.
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Section 17.2
Financial Management
Investments and Reserve Funds
Businesses need reserve cash for:
 Emergencies
 Unexpected costs
Cash reserves could save your business when
any type of disaster strikes.
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Section 17.2
Financial Management
The Importance of Financial
Management
Businesses must:
 Make a profit.
 Invest part of that profit for future use.
Making and monitoring investments is an
important part of financial management.
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Chapter 17
Developing a Business Plan
Key Term Review










 merchandise
free enterprise system
 inventory
profit
 cash flow
business plan
 negative cash flow
strategic plan
marketing plan
financial plan
accounting
transaction
generally accepted accounting principles (GAAP)
budget
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Chapter 17
Developing a Business Plan
Reviewing Key Concepts
1.
Explain how financial management is the basic foundation for
business success.
A financial plan outlines the essential financial elements for
starting and running a business.
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Chapter 17
Developing a Business Plan
Reviewing Key Concepts
2.
Describe specific items you would include in your business’s
strategic, marketing, and financial plans.
A strategic plan is a written outline of:

The business goals

The steps to take to achieve them
A marketing plan is a written outline of how the business will be
promoted to increase customers and sales.
A financial plan is a written outline of:

How the business will get money to start up and
operate

How the business will maintain financial operations
and business records
Business and Personal Finance Unit 5 Chapter 17 © 2007 Glencoe/McGraw-Hill
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Chapter 17
Developing a Business Plan
Reviewing Key Concepts
3.
Identify the three aspects of a financial plan.
An effective financial plan addresses three aspects of operating
your business:

Assets needed

Purchasing methods

Daily financial operations
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Chapter 17
Developing a Business Plan
Reviewing Key Concepts
4.
List three examples of accounting transactions.
Your business is making a transaction whenever you:

Buy supplies.

Sell merchandise.

Buy a photocopier.

Pay utility bills.
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Chapter 17
Developing a Business Plan
Reviewing Key Concepts
5.
Explain why a business needs to follow generally accepted
accounting principles (GAAP).
Using generally accepted accounting principles (GAAP) allows
investors, banks, suppliers, and government agencies to make
comparisons of the financial condition of various companies.
GAAP allows you to determine which businesses:

Are financially stable

Have the highest percentage of profit

Are growing the fastest
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Newsclip: A Shaky Ship?
Despite a weak economy, a company can succeed if it adheres to
a comprehensive business plan.
Log On Go to finance07.glencoe.com and open Chapter 17.
Learn all of the elements of a business plan. Choose a
corporation featured in the news. Write a sample business plan
for it.
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