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Learn to assess feasibility, project sales, determine pricing strategies, and understand financial statements to run a successful business. Explore concepts like break-even point and cash flow management.
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Understanding Feasibility & Accessing Information Mile Markers 3 & 4 (4.02)
Making Money $$$$ • In order to determine if a product or service is needed, a feasibility analysis should be completed. • After deciding that it is viable, a prototype ( a working model or product) should be developed
Sales Projections • Also called a forecast • An estimate of sales for a specific period • Can be a yearly, quarterly, monthly, daily projection
Pricing • Fixed Costs • Expenses that don’t change with number of products produced • Examples: • Rent • Insurance • Variable Costs • Expenses that change with each unit produced • Examples: • Utilities • Wages • Materials
Pricing • Liabilities • Money owed to others • Examples: • Bills • Wages • Taxes
Pricing • Odd/Even Pricing • Odd ($19.99) suggests bargains • Even ($20.00) suggests higher quality • Part of psychological pricing • Markup • The amount added to the cost of a product to cover expenses & ensure a profit • Cost + Markup = Price • $5 + $2 = $7
Break Even Point • When the money from product sales equals the costs of making and distributing the product • Can be used to figure out how many dollars in sales it will take for a product to break even • Formula: • Fixed expenses/ unit sales price – variable expenses (cost to make product) = Break even point (units needed to sell) • Example: • $7000/$10 - $6.50 = 2000 units
Cash-flow Statement • Describes the flow of cash into & out of a business • Needs to be created at the end of each month • Helps with estimate sales and operating expenses • Formula: • Cash receipts (inflow) – Disbursements (outflow) = Net cash flow
Balance Sheet • Tells what a business is worth • Formula: • Assets = Liabilities + Owner’s equity • Assets- things of value that belong to a company • Owner’s equity- the amount left over after the liabilities are subtracted from assets
Income Statement • Also called a profit-and-loss statement • Compares revenues & expenses over a specific period • Prepared monthly • Formula: • Revenues – Expenses = Net Income (Loss)