Creating A Solid Financial Plan Please Respond To The 070818

creating A Solid Financial Planplease Respond To The Followingdisc

Discuss the best way to leverage a breakeven analysis when defining a business strategy. Analyze the 12 financial ratios mentioned in the textbook and determine which is the most useful to the greatest number of small businesses. Explain your rationale. Analyze the steps involved in preparing a cash budget and determine which steps present the greatest obstacles to small businesses. Explain your rationale. Analyze the steps involved in avoiding a cash crunch and make at least one additional recommendation for doing so, supported by specific examples.

Paper For Above instruction

Developing a solid financial plan is crucial for small business success, with breakeven analysis playing a strategic role in informing decision-making. Leveraging breakeven analysis allows entrepreneurs to identify the minimum sales volume needed to cover all fixed and variable costs, providing a clear benchmark for profitability. This information influences product pricing, cost control, and sales strategies, ensuring sustainability and growth. For example, if a coffee shop owner calculates that breakeven occurs at 300 cups per day, they can focus marketing efforts to reach this target while setting realistic financial goals.

Among the 12 financial ratios discussed in most textbooks—liquidity ratios, profitability ratios, activity ratios, and leverage ratios—profitability ratios such as net profit margin are especially useful to small businesses. These ratios directly reflect the company's ability to generate profit relative to sales or assets, which is vital for small enterprises that need to maximize limited resources. For instance, a high net profit margin indicates efficient operations, making it an essential indicator for small business owners to monitor regularly to ensure ongoing viability.

Preparing a cash budget involves several critical steps, including estimating cash inflows and outflows, scheduling payments, and projecting ending cash balances over specific periods. Among these, accurately forecasting cash inflows presents the greatest challenge for small businesses due to unpredictable customer payments, delayed receivables, or seasonal fluctuations. For example, a retail store may experience uneven cash inflows, complicating precise projections. This step's difficulty can jeopardize the entire budgeting process if not managed carefully.

To avoid a cash crunch, small businesses should implement proactive measures such as maintaining a cash reserve, negotiating favorable credit terms with suppliers, and monitoring cash flow regularly. An additional recommendation is adopting flexible payment terms for clients, such as offering discounts for early payments, which can accelerate collections. For instance, a consultancy firm might incentivize clients to pay invoices within 10 days instead of 30, ensuring a more predictable cash inflow. Regular cash flow analysis combined with these strategies helps prevent liquidity issues, securing operational stability.

References

  • Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Healy, P. M., & Palepu, K. G. (2012). Business Analysis & Valuation: Using Financial Statements (4th ed.). Cengage Learning.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2022). Corporate Finance (12th ed.). McGraw-Hill Education.
  • Gitman, L. J., & Zutter, C. J. (2019). Principles of Managerial Finance (8th ed.). Pearson.
  • Ross, M., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.
  • Blocher, E., Stout, D., Jelinek, M., & Cokins, G. (2019). Cost Management: A Strategic Emphasis (8th ed.). McGraw-Hill Education.
  • Gibson, C. H. (2017). Financial Reporting & Analysis (14th ed.). Cengage Learning.
  • Khan, M. Y., & Jain, P. K. (2020). Financial Management: Text, Problems and Cases. McGraw-Hill Education.
  • Ross, S. A., et al. (2020). Corporate Finance (6th ed.). McGraw-Hill Education.
  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.

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