Money Money Money Money... Money

Last week, you began researching the cost associated with running your business.  I gave you a number of questions to guide you as you analyze all the expenses that go into running a business on a day-to-day basis.  This week, we will focus on going further into our analysis of dollars and cents.  After all, the main goal of our business is to maintain a comfortable standard of living (translation: make enough money) while doing what we love.

Here’s a breakdown of our weekly tasks:

Monday and Tuesday: Breakeven Analysis

Below is a photo of what a typical breakeven analysis might look like for a business plan.

Worry not.  I don’t expect you to go into such great detail for this project if you are not a member of the finance department at Office Guru.  What I would like you to do today is simple. 

·      First, add up your total fixed and the average of each variable expense you calculated last week. 

·      Next, take a look at how you generate revenue.  Do you sell merchandise?  Services?  Determine the average revenue generated per unit. 

For example, if you sell cupcakes, I’m sure they vary in price (maybe from $1.50 up to $4.50).  If you feel as if you’ll sell more of the $1.50 cupcakes, instead of having an average revenue per unit of $3.00, perhaps you will estimate it at $2.50 or $2.75.  Ultimately, what I’m looking for is proof that you understand approximate expenses and can determine how much merchandise (or services) you’ll have to sell to at least break even.

From the rubric:

Provide break-even amounts in total dollars or number of sales. Provide details about assumptions you used to perform analysis including the profit margin percentage. (Assume that all costs are fixed except for cost of goods sold.)

Once you have determined a break-even for your business, access the Excel Spreadsheet titled "Breakeven Analysis" from my Public folder and create your own chart.

Wednesday: Projected Sales

Nobody goes into business with the hope of just breaking even.  Though this may be the outcome at first, I’m certain you wish to eventually turn a profit.  Take today to project a realistic number for your sales over the next 12 months.  Be honest, and understand that in your first few months in business, customers may not be responsive to the new guy in town.  Perhaps it may take a while before you start gaining ground on your competitors.  Determine a fair estimate for how much you believe you will sell during your first year and record the numbers in your notes.  I will provide you with yet another Excel spreadsheet that will make your projections stand out.

Thursday and Friday: Financial Write-up and Blog Entry

Now that you have some concrete numbers drawn up for your business, it’s time to make those spreadsheets, graphs, and charts make sense.  Write a 250-word description of your breakeven analysis and sales projections. 

A good way to frame this would be to write one paragraph describing how you determined your expenses, and another one detailing how you came up with sales projections.  I know that many of you have decided to purchase land and building, and have calculated monthly mortgage payments with taxes and insurance, while others have looked up average rent per square foot for commercial property.  Tell me about that, along with how you found other expenses.  Then write about how you determined how your sales will (hopefully) increase over time.  Do you believe it may take a few months for a certain advertising campaign to start bringing in the money?  Will word of mouth help bring in new business after your first few months?  Will you even turn a profit in your first year (many businesses don’t) or will it take more time?  Tell me about your road to breakeven.

Copy and paste your write-up into a blog entry and title it "(Insert Company Name)'s Financial Write-up" when finished.  Next week, we will create an Executive Summary, organize our plan, and prepare for the Shark Tank.