Business plans — practice questions

1. Cash-flow forecast (5.3.1): Bank needs proof of monthly cash to cover loan repayments — membership seasonality must show no persistent negative months.

2. Market research (3.2): Evidence local demand, competition, realistic membership targets — reduces default risk.

3. Management/experience: Owner's fitness industry track record — human capital reduces failure risk.

Limitation to acknowledge: Optimistic membership assumptions — bank may stress-test 20% below forecast.

Step 1: Calculate the contribution per unit (customer). Contribution per unit = Selling Price per unit - Variable Cost per unit Contribution = $5.00 -$1.50 = $3.50 per customer

Step 2: Calculate the break-even point. Break-even point (units) = Total Fixed Costs / Contribution per unit Break-even point = $7,000 /$3.50 Break-even point = 2,000 customers per month

Step 3: Explain the importance for the business plan. This calculation is critical for the business plan because it establishes the minimum level of sales required to avoid making a loss. For 'The Daily Grind', they must serve 2,000 customers each month. A bank reviewing the plan will compare this target against the market research section. If the research shows a potential customer base and footfall that makes achieving 2,000 customers per month (approx. 67 per day) seem realistic, it increases the bank's confidence in the venture's viability and its ability to repay the loan. It transforms a vague sales goal into a concrete, measurable target.