Module Quiz 10
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- Focus on the difference between profitability (income statement) and cash survival (cash flow).
- Know the difference between an operating budget (recurring expenses) and a capital budget (long-term assets).
- Be ready to explain break-even using fixed vs. variable costs—and what you would change if break-even is too high.
Module 10 Study Guide: The Financial Plan
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The financial plan turns your business idea into numbers you can test, defend, and manage. Review budgets, sales forecasting, pro forma statements, cash flow timing, break-even, and sources & uses so you can explain what the venture needs—and why.
- The financial plan turns your business idea into numbers you can test, defend, and manage.
- It helps you answer: How much money do we need? When do we become profitable? What costs are fixed vs. variable? What happens if sales come in lower than expected?
- The goal is preparation, not perfect prediction—use assumptions, then revise as you learn.
- Operating vs. capital budgets: Operating = recurring day-to-day costs; Capital = long-term assets (used > 1 year).
- Sales forecasting: Build from drivers (volume, conversion, frequency, average price). Use scenarios (conservative / expected / aggressive).
- Pro forma statements: Income statement shows profitability; Cash flow shows timing and survival; Balance sheet shows financial position (Assets = Liabilities + Equity).
- Cash flow reality: A business can be profitable on paper and still fail if it runs out of cash.
- Break-even: The sales level where revenue = total costs (profit = 0). Uses fixed costs, variable costs, and contribution margin logic.
- Sources & uses: Where money comes from and exactly how it will be spent—ties funding to milestones and credibility.
- Drivers mindset: Adjust key drivers (price, volume, cost per unit, payroll) and see impacts across profit + cash.
- Explain why a financial plan is about preparation rather than perfect prediction.
- Differentiate operating budgets and capital budgets with examples.
- Build a basic sales forecast using clear assumptions and drivers.
- Identify what each pro forma statement shows (income statement, cash flow, balance sheet).
- Explain why cash flow timing can cause failure even when profits look positive.
- Define fixed vs. variable costs and explain break-even in plain language.
- Describe sources and uses of funds and why they matter for funding requests.
- Financial Plan
- Operating Budget / Capital Budget
- Sales Forecast (drivers)
- Pro Forma Income Statement
- COGS, Gross Profit, Gross Margin
- Operating Expenses, Net Income
- Pro Forma Cash Flow (timing of inflows/outflows)
- Pro Forma Balance Sheet (Assets = Liabilities + Owner’s Equity)
- Accounts Receivable / Accounts Payable / Inventory / Liquidity
- Break-even, Fixed Costs, Variable Costs, Contribution Margin
- Sources & Uses (Sources and Applications of Funds)
- Can I explain the difference between a profit forecast and cash flow timing?
- Can I list 3 operating costs and 3 capital items for a new venture?
- Can I build a simple sales forecast from: visitors → conversion rate → average order value?
- Can I explain what each pro forma statement is used for?
- Can I define fixed vs. variable costs and describe what it means if break-even is too high?
- If cash is running low, can I name 3 actions (delay a capital purchase, reduce expenses, adjust pricing/offer, improve collections, cut inventory, etc.)?
Focus Terms:
Operating Budget Capital Budget Sales Forecast Pro Forma Cash Flow Break-even Sources & Uses