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Analyzing Finances

Analyzing Finances. Unit 5. Forecasting sales. Part One. Sales Forecasting. There are four steps in preparing a sales forecast: Analyzing current conditions Reviewing past sales Making educated predications about the future Estimating your future sales for a specific time period.

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Analyzing Finances

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  1. Analyzing Finances Unit 5

  2. Forecasting sales Part One

  3. Sales Forecasting • There are fourstepsin preparing a sales forecast: • Analyzing current conditions • Reviewing past sales • Making educated predications about the future • Estimating your future sales for a specific timeperiod A sales forecast is a prediction of the amount of future sales your company expects to achieve over a certain period of time.

  4. forecasting techniques • FullCapacity– selling as many products/services as you can • ObservationalData – observe your competitors • MarketShare – what you are likely to sell • ProportionalScaling – start small and grow to estimate Number of Number of Average Amount of Customers Purchases per Year Each Purchase • SpecialConsiderations • How are sales estimated (hours, yards, item, etc.) • Seasonal Cycles x x

  5. Project Time Create a Sales Forecast in Excel

  6. The Cost of business Part Two

  7. Fixed costs • Stay the same no matter how many items are produced. DEPRECIATION Spreading the total cost of equipment over the number of years it will be used. You purchased a lawn mower for $325. You expect the lawn mower to last for 10 years. At that time, you will sell the lawn mower for $25. What is your depreciation cost per year? $30

  8. Project time Estimate Your Fixed Expenses

  9. Variable costs • Variable costs change based on how many items are produced • Cost of Goods Sold (COGS) • Cost of merchandise • Cost of materials • Cost of labor • Other Expenses • Commissions • Shipping • Handling ECONOMIES OF SCALE Try to take advantage of VOLUME DISCOUNTS to keep costs down.

  10. Project time Estimate Your Variable Expenses

  11. Units of sale • A unit of sale is what the customers actually buys from you. • vs. • The contribution margin is the amount per unit that a product contributes toward the company’s profitability. Contribution Margin Selling Price – Variable Expenses The Student Store sells a candy bar for $1. The store pays $0.48 for the candy bar. What is the contribution margin? $0.52

  12. Contribution margin for service business

  13. Breakeven point • The breakeven point is the level of sales required to pay all expenses. The Student Store sells a candy bar for $1. The store pays $0.48 for the candy bar. The Student Store has monthly fixed expenses of $160. What is the breakeven point for candy bars?

  14. Time to practice Units of Sale

  15. Solve each problem

  16. Financial Statements Part Three

  17. Schedule of startup funds required • Outline of the equipment, supplies & marketing expenses required to start a business.

  18. Project time Create a Schedule of Startup Funds

  19. Income statement • Summary of income and expenses • Can be weekly, monthly or yearly • Calendar Year • Fiscal Year • Must do yearly; should do monthly. See the white textbook for examples for merchandisingand manufacturing businesses.

  20. Project time Create a Projected Income Statement

  21. Cash flow statement • Summary of cash inflows and outflows WARNING! Cash Flows can vary greatly from one month/season to the next!

  22. Project time Create a Projected Cash Flow Stmt.

  23. Ways to keep cash flowing

  24. Analyzing Finances Unit 5

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