How to Earn the Big Bucks

In layman’s terms, efficiency means getting stuff done in a timely manner.  This week we have to do a lot of work in a short 5-day time frame.  We will complete at least one presentation per class period, but also have to focus on completing all elements of the financial plan.  This means that not every student will get to present his/her idea to the class before we actually present our plans.  The snow has really put us behind the pace, so we need to pick it up this week.  See below for what we will do each day after our collaboration exercise.

Monday/Tuesday: Expenses (Fixed/Variable) and Blog

The time has come to begin looking for real numbers for our business.  How much money does it actually cost to run your business?  Many of you have already done at least some research about renting a facility, paying employees, advertising expenses, etc.  For Monday, the plan is to first list as many costs as you can for your business.  Consider these questions:

o   Will you have a facility?

o   How much is the rent for the amount of square footage you need?

o   Will you hire employees?

o   Will you advertise?

o   Approximately how much does the utility bill cost for a facility you plan to run?

o   Do you sell merchandise?  What is the cost to make or procure the merchandise?

o   What other consumable assets will you use on a monthly basis? (landscaping companies use fuel on a regular basis)

The list can go on and on.  My suggestion is that you find as many fixed and variable expenses as possible for your plan.  A simple web search can greatly help you.

Once you’ve sufficiently completed these tasks (or if we only have about 20 minutes left in class Tuesday), it’s time to blog about your progress.  Feel free to tell me:

What have you learned about being prepared for anything? 

How did you react to having to deal with the possibility that your original assumptions may have been wrong?

What did you learn about our economy? Has your opinion changed about anything?

How will the economy impact your business?

Were you aware of all the expenses your business would have to pay?  Which expenses stood out during your research?

Wednesday: 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 Pick-it Sweets & Treats.  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.

Thursday: 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.

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 break-even 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.